Updated 1.06pm

The government will spend around €608 million in subsidising energy and food prices next year, an increase of €135 million on this year’s spend, the finance minister said on Friday.

Clyde Caruana said that although this large sum will amount to 3.6% of GDP, the government is determined to keep subsiding energy prices for as long as the cost-of-living crisis continues while still aiming to reduce the national deficit by the end of next year.

The government is currently absorbing the increase in energy prices by subsidising Enemalta and also paying out subsidies to importers of cereal, flour and animal feed. 

Caruana said the deficit should be at 5.8% by the end of this year, which he said was well within last year’s targets.

“Last year I pledged the national deficit will be between 5.5% and 7% this year,” he said.

“Despite all the government’s fiscal initiatives, wage supplement and energy subsidies, we will end this year with a 5.8% deficit and despite a higher government expenditure next year, we will still manage to reduce the deficit even more.”

Caruana was speaking at the launch of the annual pre-budget consultation document.

Last year government spent €472.5 million on food and energy support, which amounted to 3% of GDP.

Soaring energy prices

The finance minister said energy prices have ballooned ten-fold in the last 12 months.

“In 2019 a unit of energy from the interconnector cost us 6c. It now costs us 54c,” he said, insisting that while other countries sink desperately into debt, Malta will continue to spend millions for the forseeable future without having to curb expenses, benefits, subsidies or any of the other present government initiatives.

“Of course, we must take great care of our debt, of how we spend government and EU funds, and yes, we also need to make sure the government collects every penny that is due to it.”

Caruana said had it not been for the effects of the Ukraine invasion, the country would close off this year with a deficit of 2.8%.

He reiterated that had the government not been in a strong enough position to cushion the impacts of inflation, the Cost Of Living Adjustment would have rocketed to €25 per week and families and businesses would have had to absorb the price hikes, and that is exactly what is happening in our neighbouring EU states.

He said the country’s debt will continue to hover around 60% until 2027, that the government expenditure will continue to grow and he expects the economy to grow by 4% next year.

Spending concerns

Caruana also addressed concerns over the sustainability of the current government expenditure.

“I’m hearing many people say that all of these subsidies will probably vanish after the budget or after Christmas, and then the government will be forced to start curbing on its expenditure,” he said.

“Let me tell you, we will not go there. Not now, not after the budget, not after Christmas, not even next year.”

He said it makes no sense for the country to have spent so much money to mitigate the effects of the pandemic, only to stop now.