The famous quote attributed to President Bill Clinton emphasises that economic growth often determines the outcome of an election.  It has become the mantra in democracies.  Is it still a valid bell-weather for the outcome of the general election next week?

The state of the economy is certainly a fundamental pillar in the PL's electoral programme. Many of the PL's proposals would not be feasible without further sustained economic growth.  The PN knows it would be treading in dangerous waters if it were to dispute this imperative.  It is therefore trying to sell a different proposition: that the economic growth it will pursue is of a different quality.

In 2003, people were sold the promise that EU membership would bring economic growth and prosperity to Malta.  It was to the PN's credit that we started down this road.  For a decade, we enjoyed the fruits of millions of euros in accession funda to fuel our capital investment.  Since 2013, we have seen an unprecedented economic boom engineered by the PL governments.

Thanks to sound economic and employment policies, GDP in Purchasing Power Standard (PPS) has increased at the annual rate of 7.7 percent since 2013, compared to 4.27 percent in the previous 13 years (the corresponding EU figures are 3.01 percent and 3.79 percent respectively).  Even more telling, GDP per capita in PPS has risen by 5.09 percent per annum in purchasing power standards prices since 2013, compared to 3.50 percent in the previous 13 years.  These high rates of growth have enabled us to increase our income per capita from 83 percent of the EU average in 2000 through 91.0 percent in 2013 to 109.7 percent in 2025.

Equally striking has been the miracle of work.  The labour force participation rate rose by eight percentage points between 2000-2012 and by 16.3 p.p. between 2013-2025, reaching 82.6 percent in 2025 and now exceeding the EU average rate by almost nine percentage points.   Much of this growth was due to the Government's creative labour market policies, driven by increasing the supply of labour and incentivising women to join the labour force.  Female labour force participation improved by 16.2 p.p. in the former period but by 23.5 p.p. in the latter one and has now reached 75.5 percent compared to 71.1 percent in the EU.

As a result, the perennial problem of unemployment has been defeated: our jobless rate declined from an average of 6.75 percent between 2000-2012 to 4.25 percent between 2013-2025, going down to 3.1 percent in 2025.

Economic growth has necessitated the importation of thousands of foreign workers, mostly to perform low-productivity, low-wage jobs. In a staggering denial of economic logic, the Opposition PN has argued that our economic growth is due to this, when the reality is that it is the other way round. The PN's various electoral promises would be dead in the water without foreign labour.

Of course, the strong spurt of economic growth and importation of foreign labour have brought their own problems.  Infrastructure and the transport system have not coped. Other public services, such as health, have come under heavy strain.  At the societal level, the pressure of thousands of third-country workers has provoked a sense of insecurity among a certain section of the population, mainly lowly educated people.

These issues present real and strong challenges that are now being addressed, though slowly and partially.  One criticism of the Government is that it could, and should, have done much more and earlier.  This may cost it some votes in this election, but hopefully the lesson will have been learnt.

Looking at the economic record, it hasn't been all roses.  The main thorn has come from inflation.  Though one cannot dispute that a certain component of inflation has been fuelled by high domestic demand, the truth is that much of it was due to foreign developments.  Since Malta has one of the most open economies in the world, this was inevitable.  No Maltese government has the toolbox to avoid this.  The Labour Government has undoubtedly done a good job in attenuating the impact, even though the fight has made a meaningful dent in our public finances.

The other thorn has been the rising price of property.  There has been a significant, sustained increase over the 25 years, driven by high demand, limited space, and increased immigration.  According to the NSO Property price Index, property prices have risen eleven-fold since 1980, averaging a growth rate of 5.5 percent annually.   It is simply not true that costs exploded after 2012; in fact, the annual growth was 4.8 percent.  

Mind you, the Governor of the Central Bank of Malta has criticised recent alarmist reports (e.g. the KPMG Construction and Property Report) as being unduly influenced by outlier prices, since they are based on averages.  Based on median prices, the average property price for an apartment computed by the CBM for the first three quarters of 2025 stood at around €341,000, which is about 17.6% lower than the average price computed by KPMG.  

What is relevant both in the KPMG report and in the CBM's analysis is that housing affordability in terms of price-to-income ratios has actually improved over the last six years since income growth has on average outpaced the rise in apartment prices. The ratio was 15.2 in 2018 and was down to 14.2 in 2024.  In fact, the price-to-income ratio has fallen below its long-term average, while for the EU it headed into the opposite direction.  

Young people have been finding it rather hard to acquire a property at the beginning of their working life.  Although the Government has been improving its housing package over the years, much remains to be done.  Making housing more affordable is surely a sine qua non to avoid social unrest in the future.  All the political parties have made their pitch, and the incoming government will have a menu of ideas from which to choose.

We often hear claims that the economic model I have referred to is an empty vessel, in that it has been built on a low household income platform.  This is bonkers.  The median net equivalised income of households rose by a rate of 4.2 percent between 2005-2012, but at a compound annual rate of 5.2 percent over the last 13 years.  In the latter period, it almost doubled to €22,034 in 2025.

According to a recent seminal paper by Dr Aaron Grech of the CBM, the median employment income for Maltese nationals who worked full-time for a whole year in 2024 amounted to €32,500, that for third country nationals was €18,200, while for EU/EEA citizens the figure was €32,700.  Maltese full-time workers earn about 12% more than the national average, while third country nationals earn 38% less.

One worrying fact is that income inequality has tended to rise since 2014, while that in the EU has declined.  The Gini coefficient has risen by 5.5 percent to 29.2 (there is more inequality), while the 80/20 ratio has increased by 10.9 percent to 4.49.   The top 10% of the population now hold 42% of the country's wealth, while the bottom 50 percent hold some 12.5 percent.  Not very socialist.

Recently, I wrote about government spending and its growth in recent years.  There is no way this will stop.  Over the last decade public sector spending has grown at a rate of 8.9 percent per annum (compared to 5.9 percent annually in the previous decade).  To think that any cost savings in the public sector would have a significant impact is wishful thinking.  Rather, I would say that the focus should be on enhanced efficiency and service quality, so that we get more value for money.

Looking at cost-cutting programmes by various governments in the world, only around 19 percent were "successful or very successful" in delivering savings.  Most of the efforts have failed. The best one can hope for is that spending rises at a lower rate.  On the positive side, one could say that we are still below the 42% average in the EU.

The proposals being made by the political parties will cost billions more in recurrent expenditure, on top of capital spending in many cases.  Anybody who thinks that they can be financed by some savings in recurrent expenditures had better think again.  The ambitious programmes, as well as the outright silly and wasteful proposals being made, can only be delivered by further sustained above-EU average GDP growth.

One sure way of reducing public expenditure is to have less corruption in the award of contracts and the provision of services to the government.  Corruption is a hidden and regressive tax, in that it hampers economic growth, distorts public spending, and increases costs for individuals and businesses.

Meanwhile, the fiscal deficit has been going down.  Since the 10% gap at the height of the Covid pandemic, it has come down four-fold to 2.2 percent last year.  Similarly, the public debt percentage has dropped from 48.8 percent of 46.8 percent of GDP.  The IMF has commended the authorities' sound macroeconomic management, as well as welcomed the strength of the banking sector, citing high capital and liquidity buffers and low non-performing loans.

To conclude, I'm not saying that this whole election will be about "It's the economy, stupid!"  But one would be stupid to think that the state and health of the economy will not have a paramount role in it.  The Labour Government can point to a set of solid results.  The PN Opposition can only sell a set of ideas and hope that the electorate will take it on trust.  The question is whether the economy, where the PL has the decisive advantage, will outweigh other issues on which the PN could gain ground. Who will win can only be decided at the ballot box.