Government subsidies to keep energy prices stable will account for almost 10% of the government’s recurrent expenditure next year, data presented in the Budget shows.
Prices of both electricity and fuel have been frozen since the Covid pandemic broke out, with the government insisting that this measure has sustained economic growth, maintained industrial competitiveness and kept inflation in check.
“We will be spending €508 million to keep energy prices stable next year, that is as much as an average ministry spends,” Finance Minister Clyde Caruana told journalists just before the Budget speech.
Subsidies on energy accounted for 6.4% of the government’s recurrent expenditure this year.
“Had we not frozen energy prices, inflation in Malta this year would be about the sixth or seventh highest in the EU. Economic growth would have been halved, you would have been asking me how many businesses are expected to close and how high unemployment is expected to reach,” Caruana told reporters.
“Just see what is happening in Italy, for example,” the new government is looking at ways to soften the blow of energy prices on households and businesses. In Malta the government has fully absorbed the blow itself.”
“Other countries are nowhere near what we are doing and yet we have sustainable finances,” he said.
The minister held out hope that international energy prices will fall in the coming months, meaning a lower cost to the government. Some oil and gas prices have already started to fall, he observed, and they would fall further if world economies weakened and demand fell.
But the government views this as a long haul, and it expects its subsidies to account for 7.7% of government recurrent expenditure in 2024 before falling to 5.5% in 2025.
Subsidy on cereal imports will also be maintained
The minister said the government will also maintain the current subsidies to cap the prices of cereals.
He explained that with energy and cereal prices heavily subsidised, one of the main drivers of inflation in Malta was food imports. 40% of food imports came from Italy and the UK