Updated 3pm with PN reaction 

The European Commission has formally warned Malta and seven other EU member states over their excessive budget deficits.

Separately, the European Commission also reiterated its call for Malta to wind down its energy subsidies as well as take other measures to tackle a severe shortage and mismatch of skills, ease traffic congestion and increase renewable energy.

Warnings over budget deficits were issued on Wednesday against Belgium, France, Italy, Hungary, Malta, Poland and Slovakia.  Romania was accused of having failed to heed previous warnings. 

"In light of this assessment, and after considering the opinion of the Economic and Financial Committee, the commission intends to propose to the council to open excessive deficit procedures for these member states in July 2024,"  the EU executive said.

“Longstanding structural challenges are holding back the EU’s competitiveness,” EU Commissioner Valdis Dombrovskis said in a statement.

“We look forward to receiving national fiscal structural plans from member states that bring down debt and deficit and reflect today’s recommendations.” 

For decades, the EU has set out targets for member states to keep their annual deficit within 3% of Gross Domestic Product and overall debt within 60% of output.

The Maltese government has repeatedly defended its position, arguing that the deficit is falling as the economy grows. Malta ended 2023 with a deficit of -4.9%.

The Finance Minister has insisted that the gap will continue shrinking by 0.5 percentage points each year up to 2026 in line with the Economic Governance Framework agreement reached between EU finance ministers last January. 

'Wind down the emergency energy support measures'

The Commission in recommendations to member states on Wednesday (see recommendations in full on pdf below) called on Malta to submit the medium-term fiscal-structural plan in a timely manner and to keep the general government debt at a prudent level over the medium term in line with EU treaties.

It again urged Malta to "wind down the emergency energy support measures by the 2024/2025 winter" and address remaining aggressive tax planning risks, introduce a withholding tax on outbound payments or equivalent defensive measures, and amend rules on non-domiciled companies.."

Prime Minister Robert Abela had warned ahead of the EU elections earlier this month that Malta would not lift the energcy subsidies' whatever the EU said."

The commission on Wednesday also urged Malta to continue with the swift and effective implementation of the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026. 

Malta was urged to strengthen the quality and labour market relevance of education and training to address low educational outcomes as well as the severe shortage and mismatch of skills, in particular by fostering basic skills of students and the professional development of teachers.

Action needed on traffic congestion, renewable energy

The country was also told to accelerate the deployment of renewable energy through large-scale projects as well as small-scale investments in direct energy production and consumption.

A call was made for Malta to address traffic congestion by improved quality and efficiency of public transport and step upinvestments in ‘soft mobility’ infrastructure.

Government reaction makes no reference to energy subsidies

In a reaction (carried in full on pdf below) the government noted that the European Commission had observed that Malta’s economy would continue to outperform other member states in 2024 and 2025. This growth is expected to be driven by net exports and private consumption. 

"Similarly, the fact that the rate of inflation is projected to be halved by 2025 confirms that the government’s policies to promote price stability when it comes to basic necessities are bearing the desired results."

The government reiterated that the deficit will narrow by 0.5% annually, ensuring it falls below 3% over the next four years.

It said it remained committed to effectively implementing the Recovery and Resilience Plan, including the REPowerEU Chapter, and the Cohesion policy programmes. The implementation of this plan will tackle areas addressing the green and digital elements, as well as reforms in other sectors.

Various initiatives were being undertaken to support the green transition, it said, including the launch of four new calls for investments in larger renewable energy systems, from 40kW up to 1,000kW and another call for large-scale renewable energy systems exceeding 1,000kW in 2024.

The Energy Efficiency and Renewable Energy (EERE) Malta Financial Instrument had been fully implemented and had generated some €65 million worth of loans to final recipients. A second electrical cable interconnection between Malta and Sicily is planned to be commissioned by the end of 2026.

On traffic, the government said significant investment had been directed towards improving transportation infrastructure, including both major and urban road networks specifically focusing on the TEN-T roads, the upgrades to the inner-harbour ferry system and the promotion of alternative eco-friendly commuting options. The extension of the free public transport to all, for instance, led to an increase in the usage of this service.

The government did not directly address the energy subsidies in its reaction. 

'Stop spending public funds unsustainably' - PN

In a statement on Wednesday afternoon, the PN said the warning follows similar warnings by the Opposition that the government had ignored. 

“Once again, the PN is urging the government to stop wasting public funds and ensure Malta's expenditure is sustainable.

“The debt - which exceeds €10 billion and accrues nearly €600,000 in daily interests - is alarming and unsustainable,” the PN said.

The party also urged the government to explain the impact of excessive deficit procedures to the electorate and detail how it will try address the problem.