Energy subsidies for households and businesses are expected to cost Malta €152m next year, half the amount that was set aside for 2024, according to budget figures published on Monday.

Whilst some €320 million was allocated towards the subsidies this year, budget figures show that falling energy costs mean the government will now need to shell out far less than it previously did to subsidise energy prices.

Meanwhile, the subsidy on cereal and animal feed will also remain in place, rising from €1.2m in 2024 to €1.3m next year.

This will be the fourth year in a row in which the government will subsidise energy prices, Finance minister Clyde Caruana said during Monday’s budget speech.

But the dent caused by the subsidies to the government’s coffers is shrinking from one year to the next, dropping from a staggering allocation of €580m in 2023 to €320 a year later and €152m in this week’s budget.  

Actual spend may vary as energy prices fluctuate

Despite these allocations, the amount that the government eventually spends on subsidies can vary as energy prices rise and fall, with allocations typically based on forecasts of fluctuations in international oil prices over the coming year.

The final cost of the subsidies also rely on the hedging agreements entered into by Enemalta and Enemed, the state-run fuel importer.

The newly published budget shows that while the government had set aside €580m for energy subsidies in 2023, it only ended up spending a little over €227m, a similar figure to what it had spent the year before.

During Monday’s budget speech, Caruana said that a drop in the burden of subsidies was key to the government’s ability to implement other fiscal measures, such as the much-vaunted income tax cuts.

Subsidies to stay despite EU pressure

The new allocation towards energy subsidies comes in spite of international pressure on the government to scrap the subsidies altogether.

The European Commission has frequently warned Malta to wind down its energy subsidies, calling on the government to divert those funds towards its excessive deficit.

Several rating agencies followed suit, the most recent being DBRS Morningstar who said earlier this month that it was concerned at a lack of a “clear exit strategy” to end subsidies.

Caruana did not shy away from addressing the EU’s pressure during his budget speech, saying that “the government does not believe that people should suffer the blow resulting from what is happening around us”.

“We are not going against the EU’s recommendations to be obstinate, but because we can now reap what we sowed through hard work and prudence.”