Malta Budget 2026 - Economic Analysis

In 2024, Malta recorded a deficit of -3.5% of GDP, which is expected to narrow to -3.3% in 2025 and further to -2.8% by 2026, thereby falling below the 3% EU target. Such deficits are more or less in line with the current European average, and the downward trajectory is encouraging.

Across the bloc, France and Italy continue to post some of the largest deficits, while Cyprus, Greece, and Ireland maintain fiscal surpluses.

Malta’s debt-to-GDP ratio is expected to amount to 47.1% in 2025, down from 49.5% in 2024, remaining well below the Euro Area average of 88.3% and the Maastricht criteria of 60% - implying an element of fiscal manoeuvrability going forward

Government debt is projected to rise from €10.7bn in 2024 to €11.6bn in 2025, reaching €14.0bn by 2028, while nominal GDP is expected to grow from €23.1bn to €30.2bn over the same period.

Government debt is set to increase at a CAGR of 7.1% over the period. However, Government expects this to be matched by similar growth in nominal GDP (CAGR 7.0%) over the period. As a result, the debt-to-GDP ratio is set to remain relatively stable, fluctuating between 46.2% and 47.3% before settling at 46.4% in 2028.  

Due to such increases in debt, interest costs continue to increase, even when expressed as a percentage of GDP, moving from 1.1% in 2024 to 1.3% from 2026 onwards, where it stabilises.

Government interest payments are expected to increase steadily from €261m in 2024 to €384m by 2028. This rise reflects the impact of growing debt levels and also a relatively high-interest rate environment.

Government recurrent revenue is projected to rise from €7.86 billion in 2024 to €8.0bn in 2025, reaching €9.53 billion by 2028.

Total tax revenue is projected to rise by 6.4% in 2026 compared to the previous year, marking a significant increase from the 2.3% growth recorded between 2024 and 2025. In 2025, the increase in tax collection was a result of higher revenue from indirect taxes, while revenue from income taxes actually declined somewhat, dropping from €3.4bn to €3.3bn – possibly a result of the widening of the tax bracket measure in last year’s budget. This decline was offset by a collectively larger increase in VAT collection, customs, and excise duties. Meanwhile, total tax revenue is projected to rise further in 2027 and 2028 by 6.8% and 5.6%, respectively, on the back of sustained economic growth.

On the other hand, non-tax revenue is expected to decrease from 2025 to 2026 by 11.1%. However, it is then expected to sharply increase by 16.8% in 2027, followed by a minimal increase of 1.0% in 2028. Overall, this highlights a strong reliance on tax-based income for future fiscal planning.

Government expenditure is projected to rise steadily from €8.3 billion in 2024 to €10.2 billion by 2028, reflecting a CAGR of 5.4% over the period, compared to 4.9% for revenue.

The growth in government expenditure is driven mainly by recurrent expenditure, which accounts for the largest share and is expected to grow from €6.9 billion to €8.6 billion over the period. On the other hand, capital expenditure is expected to drop slightly in 2026, from €1.2bn to €1.1bn, remaining more or less at that level.

For the year 2025, expenditure is set to amount to €9.0bn, compared with revenue of €8.0bn, implying a deficit in the consolidated fund of €996m.

Looking at the forecast horizon, while total government expenditure is increasing at a CAGR of 5.4%, total government revenue, as shown in the table above, is growing at a CAGR of 4.9%. This highlights the increasing pressure on public finances over the period, which Government expects to mitigate through comparatively faster economic growth.