Fiscal watchdog fires warning over government spending

Updated 12.30pm with PN reaction

An independent government spending watchdog has expressed concern that Malta has “significantly exceeded” its expenditure commitments under new European Union rules.

These concerns, as outlined in a report by the Fiscal Advisory Council, stem from the “exceptionally high” increase in spending seen in 2024.

While the government had initially planned no growth in net expenditure for 2025 to correct this, new projections show a 5.8% increase in spending, which would put it above the EU’s recommended spending ceiling.

This ceiling, known as the medium-term fiscal structural plan, is a four-year financial health plan that sets limits on how much governments can increase their spending every year.

The council called on the government to refrain from further inflating spending to ensure compliance with this spending ceiling. 

“High spending leaves Malta vulnerable if economic conditions weaken. At the same time, the council stresses that this should not come at the expense of productive investment,” the report says.

It urged the government to use the current favourable economic conditions to strengthen Malta’s public finances.

The council said that any extra revenue should be directed towards reducing the budget deficit and rebuilding fiscal buffers, with fiscal restraint in “non-productive” expenditure.

It emphasised that prioritising productive public investment, particularly in infrastructure, education, skills and innovation, can improve labour and capital productivity, support higher value-added economic activity and raise the country’s growth potential in a sustainable manner.

The European Commission has already signalled similar spending concerns, noting that, while the deficit may fall below the 3% target by 2026, the underlying spending patterns remain high. This has led to demands by the opposition for the government to rein in its overspending or risk the country losing control over its own finances.

It said the European Commission’s latest assessment of Malta’s budget amounted to a formal warning that, unless spending is brought back in line with EU expectations, Brussels could be forced to intervene. 

A recent report by the auditor general highlighted how Malta has seen a “substantial increase” in the amount of interest it has to pay to finance its debts, with the figure hitting €261 million in 2024.

An audit of public accounts by the auditor general flagged how the €261 million figure amounts to a 22% or €47.2 million increase compared to the previous year.

By the end of 2024, the amount of outstanding government debt was close to €11 billion, an increase of €736 million when compared to the previous year.

Gov warned by its own experts: PN

Reacting, the PN said that the government’s "dangerous mismanagement" of the country’s finances has reached a point where even the experts it appointed itself were warning it to change course before it was too late.

Adrian Delia and Jerome Caruana Cilia said in a statement that in just one year, the Labour government had paid more than €260 million in interest on its own debt. 

"This is a government without an economic vision: while a few continue to prosper, the wider public is left to bear the burden of rising prices," the shadow ministers for finance and economy said. 

They added that the PN was once again urging the government to listen to its own experts, the Auditor General, European institutions and constituted bodies, and to stop burying its head in the sand.

"Malta deserves financial accountability and fiscal prudence, where taxpayers’ money is invested in initiatives that genuinely deliver returns and improve people’s quality of life."