The government is ensuring that the economy remains healthy, Finance Minister Clyde Caruana told The Malta Independent on Sunday.

Malta's debt will stand at €11.6 billion by the end of this year, but in 2028, it is projected to increase to €14 billion. Asked whether the country is being selfish with future generations by increasing the debt by such an amount, he said "No, because we are making sure that the goose that is laying the golden eggs is still healthy", he said, in reference to the economy.

Minister Caruana was being interviewed by this newsroom following the presentation of the Budget for 2026.

The debt is predicted to rise, but the debt burden will still go down. Currently, Malta's debt as a percentage of the Gross Domestic Product (GDP) stands at 47.12% for this year, which is below the 60% threshold that was established in the EU's Maastricht

Treaty. In 2028, it is projected to be 46.40%, according to the budget document.

Caruana noted that between the 1980s and 2016 or 2017, Malta registered deficits. After some years of surpluses, there was Covid, the spike in energy prices, international wars, "and all those exogenous shocks which we had no control over" which necessitated government intervention. "If we didn't do that, we would not be enjoying the economic growth rate that we have today."

There are many ways how to go about reducing the deficit, he said. "It could be through a cliff-edge approach, by dropping from 5% to balancing it out in two or three years for example. But that would create ripple effects in the economy. My preferred approach is that year after year I am reducing the deficit by as much as is required by the EU, in terms of minimal effort. So I am reducing the deficit by at least 0.5 percentage points. The economy is not suffering any shocks as a result. What will happen is that eventually I will taper off and balance the books, and thereafter yes, if possible, the national debt will start to be reduced."

"But the sustainability of debt is analysed not from its absolute amount, but rather in terms of debt to GDP ratio. Back in 2013, the debt to GDP ratio was 70%. Notwithstanding all the things that have happened since then, today it is 47%, which means the economy is far bigger and it can sustain that debt."

Told that while Malta has had shocks which it has successfully managed and that the debt burden is under control now, nobody knows what would happen with the next one, he said: "fine, but that is why we have so much headroom available to make up for any additional exogenous shocks that may take place", he said,

"When you look at other mature economies... the UK will soon have its budget, France is trying to make a budget, in Spain they haven't had a budget for three or so years because they don't have a majority... their debt ratios are quite significant. Since their debt-to-GDP levels are extremely high and they attempted to reduce their deficit in a very short period of time, their economies are barely growing and are going through a difficult, painful phase. So let's ensure that the economy remains healthy and robust. Eventually, and it is happening in a very gradual manner, the fiscal situation will correct itself."

'Smart employers who want smart employees know they have to offer more flexible working conditions'

The biggest budget measure was the tax computation changes. The minister said that the measure has two aims, to help existing and future families, and also to help those families who want to have additional children be able to afford to do so.

"Last year, there was a university study published in which couples were asked how many children they would like to have. The average was two, but a number said they currently had just one. They were asked an additional question, why those who have one but want two, don't have the second - 50% said lack of financial means."

"What I announced this week is an answer for that 50%. The way I wrote the paragraph introducing all this in the budget says that there is no unique measure that will address the whole issue, but rather we have to have various initiatives that address the birth rate issue."

Asked whether he believes issues which are also contributing to people opting not to have more children are property sizes and property prices, he said that in a way the budget in part addresses it, highlighting the amount of funds that will be left in parents' pockets as a result of the income tax measure. "The amount of disposable income parents will be left with will increase substantially."

As for the lack of time parents might have to dedicate to children, the minister said that flexibility is something people need more of. "It is becoming an intrinsic part of working conditions. Smart employers who want and are after smart employees know they have to offer more flexibilities in working conditions. When we were joining the EU, a nice term I used to hear was upward convergence; we have to converge to the best in class, and that is what we have to do here. So yes, we need to do more. In fact, in the Budget speech, I said we have to start a discussion on increasing paternal, parental and maternal leave. These are all important."

The minister has recently voiced concerns about overpopulation and advocated for reforms to tackle it, yet in earlier years he supported the economic model that contributed to the sharp increase in population.

"Let me try and straighten this out once and for all. Back in the day I was not a politician. I'm not trying to excuse myself. I was a civil servant in Jobsplus, but nevertheless, back then I used to say that in order for Malta to continue to enjoy the growth it had, we had to have more labour. I fully own that. The increase in labour was quite substantial. At the end of the day, that has contributed to the significant increase in the size of our economy."

"But as the years went by, I started to raise the point that while what we have achieved is good, now given that we amassed this wealth we have to start changing direction as, if we keep repeating that recipe, we will face significant challenges." 

Until the country reached that point "you need to continue repeating it, even in public, to raise more awareness of it, as the status quo is always comfortable".

"I started to hint that there needs to be a change in direction a couple of years ago, but at least finally we've realised that we have to change course, and even the public at large is speaking about that. The government has listened too and we are changing course."

He said that the government took action by launching the Labour Migration Policy, and in how it is tailoring investment schemes. He stated that the budget's incentives are designed to encourage businesses to increase their investment in capital. "We have to keep on growing, but that growth has to come more from capital, and as a result of that productivity in labour, rather than by just adding more labour units as that would imply further population growth."

Asked whether he foresees a situation in the near future, with the direction the government is now taking, where the number of foreign workers needed in Malta would level out, or where the country would see a reduction of foreign worker numbers, he said that it is too early to say that there will be a reduction. "First it has to start by reducing the annual increase. The economy does not work like a switch, you don't do something today and see the results of that tomorrow. By reducing the increase we are already moving in the right direction, and the next step will be reaching the point you described as stabilising. But in order to reach that position more work needs to be done and we have to give more time. Ultimately that is the objective and that is why we have to become more productive and more capital intensive."

More from the interview with the Finance Minister will be published tomorrow