Finance Minister Clyde Caruana said Monday that Budget 2027 will maintain approximately €400 million in energy subsidies, continue income tax reductions for families with children and increase pensions, while ruling out increases in income tax rates, VAT and social security contributions.

Delivering the opening chapter of his Budget speech, Caruana described this year's Budget as the most important of the six he had presented since becoming Finance Minister.

Caruana said the government would not increase income tax rates, VAT or social security contributions, while introducing measures intended to generate additional revenue for infrastructure investment.

He said the government intended to balance continued financial assistance for families with fiscal consolidation and measures addressing the pressures created by Malta's economic growth.

The Minister also said the Budget would seek to move Malta towards an economic model based on higher productivity and greater added value, rather than continued increases in employment and economic activity alone.

€400 million in energy subsidies to continue

Caruana confirmed that electricity, gas and fuel prices would remain stable despite increases in international energy costs.

He said expenditure on energy subsidies and related assistance was expected to approach €400 million this year, with approximately the same amount allocated for 2027.

Caruana said the government remained committed to protecting households and businesses from international economic shocks over which they had no control.

"We will not move even an inch away from this policy," Caruana said.

He recalled that, five years ago, the government had faced a choice between allowing international energy price increases to be passed directly on to consumers and businesses or intervening to absorb their impact.

The government had chosen the latter approach, he said, describing the decision as necessary to protect workers' wages, families' finances and business competitiveness.

Caruana said he believed in the free market, competition and private enterprise, but added that government intervention was justified during extraordinary circumstances threatening economic stability.

He said the financial assistance had come at a considerable cost, although he maintained that the consequences of allowing energy bills to increase would have been greater.

The Minister also warned that international economic pressures could intensify in the coming months, particularly if the energy situation deteriorated further.

He said additional decisions might become necessary at the beginning of next year if conditions worsened.

Caruana said that Malta's economic position remained different from that of several European countries facing increasing debt and borrowing costs.

He said Malta was projecting the highest economic growth in the European Union for this year and next, while unemployment remained among the lowest in the bloc.

Nevertheless, he acknowledged that public finances needed to remain sustainable.

Caruana said the government would continue taking decisions to become more efficient and responsible, even if such measures proved unpopular.

He reiterated his intention to keep the fiscal deficit below 3% of gross domestic product while maintaining subsidies.

Further tax reductions for families and pension increases

The Budget will continue the income tax reduction programme introduced last year, with further relief for families with children, Caruana said.

Caruana said the government would also increase pensions and strengthen social assistance, particularly for people who needed financial support most.

He said that these commitments had to be financed responsibly, without compromising the government's ability to continue providing assistance in future years.

The Minister said the government would not increase income tax rates, VAT or social security contributions to finance the measures.

"We will not finance these measures by increasing the tax burden on families," he said.

Caruana said doing so would effectively mean giving financial assistance with one hand while taking it away with the other.

He also said social benefits should not be regarded as prizes or the outcome of political competition, since they represented financial commitments that had to be supported by public funds.

Caruana described protecting families as the government's greatest priority, adding that the Budget would continue fulfilling commitments concerning taxation, pensions and social assistance.

He said fiscal responsibility remained necessary to ensure that support could be maintained, particularly for vulnerable households.

Shift towards productivity and greater investment in infrastructure

Caruana also announced that the government intended to introduce measures generating additional funds for infrastructure investment while encouraging businesses to become more productive.

He said Malta's economic model had created employment opportunities and increased government revenue, allowing greater investment in social assistance.

However, he said the country's priorities had changed and that the economic model needed to evolve.

When unemployment had been a major challenge, encouraging growth that created additional jobs had been appropriate, he explained.

Today, however, increased economic activity was placing greater pressure on infrastructure, healthcare services, energy and Malta's limited resources.

Caruana referred particularly to tourism, saying the sector's success had also contributed to growing demand for public services.

He said the costs associated with increased economic activity should not be borne exclusively by Maltese and Gozitan taxpayers.

Instead, those contributing to additional pressures should also contribute towards the costs of the services and infrastructure they used.

The minister said that this was not an argument against investment or foreign workers.

He said the government wanted an economy in which the costs of economic activity better reflected its impact on the country.

Caruana also said businesses should be encouraged to invest in technology, digitalisation, modernisation and workforce skills rather than automatically relying on recruiting more employees.

He said the government's intention was to encourage higher-value economic activity that placed less pressure on infrastructure while improving productivity and competitiveness.

Caruana acknowledged that rapid economic growth had affected people's quality of life, adding that government policy needed to respond to changing expectations.

He said the aim was to ensure that economic expansion translated into improvements in living standards rather than simply higher levels of activity.

Caruana added that the Budget would strengthen incentives intended to accelerate this transition and provide clearer direction for Malta's economic development.

He said the government would seek to balance continued economic growth with infrastructure investment and improvements in people's everyday lives.