Budget 2026: Income tax slashed for parents in bid to tackle fertility challenge
Tax bands will be widened over the next three years with parents of two or more children set to benefit most
Parents will receive a bumper tax cut starting from next year, in a major drive to address Malta’s fertility woes, Finance Minister Clyde Caruana announced in Monday’s budget.
The measure will see tax bands widened progressively over a three-year period between 2026 and 2028, Caruana explained, with the tax-free income threshold rising from one year to the next.
The measure will apply to all parents, although those with two or more children are set to enjoy the largest tax cuts. It is expected to cost €160 million each year and impact 68,000 families.
"With this tax cut, the government will be indirectly paying a large part of people's home loan," Caruana said.
Parents will save an average of €2,400 on their tax bill each year, Caruana said, although the true figure will vary depending on each family.
In practice, each parent with one child who pays a parental tax rate will not be taxed on the first €14,500 they earn next year (rather than the current €13,000). This will rise to €16,000 in 2027 and €18,000 in 2028, with subsequent tax bands also rising.
Parents with two or more children will each not pay tax on the first €18,500 they earn in 2026 (up from the current €13,000), with this figure rising to €24,000 in 2027 and €30,000 the following year.
Parents of one child who fall under the married tax computation, rather than that of parents, will also benefit from the measure, seeing their untaxed income rising from this year’s threshold of €15,000 to €17,500 next year and eventually €22,500 in 2028.
Parents will continue to pay the low tax rate until their children turn 18 or, if the children remain in education, until their 23rd birthday.
The measures mean that, from 2028 onwards, a couple with one child will save roughly €3,600 in income tax each year. A couple with two or more children will see their tax bill slashed by €10,000 each year from 2028 onwards.
Together with tax cuts introduced in last year’s budget, couples with two or more children are set to save over a quarter of a million Euro in income tax over a 25-year period, Caruana said.
Parents of two children or more will each not pay tax on first €30,000 from 2028
Meanwhile, couples with two children in which parents earn under €30,000 each will effectively not pay any income tax once the measure reaches its third year in 2028.
The measures come just weeks after Caruana described Malta’s rock-bottom fertility rate as “the greatest challenge of our time”.
Other European countries are similarly struggling to get to grips with falling fertility rates, with some introducing fiscal measures in the hope of stemming the flow.
Malta’s tax cuts echo a similar measure announced last week by Poland, which pledged to remove income tax for all parents of two or more children who earn under €33,000.
Aside from the tax cut, some parents will also benefit from some tweaks to their children's allowance, Caruana said.
Unlike in several previous years, in which the government granted a blanket increase to the allowance, next year's raise will only apply to families earning under €30,000.
Families under this income band will receive an additional €250 per child, Caruana announced.