The estimated cost of the government subsidies on electricity and petrol prices has been slashed from €595 million to €262 million.

A fiscal watchdog report flags the material deviation of €333 million in the estimated costs of the subsidy in the draft budget plans for 2023 and the latest forecasts by the Finance Ministry.

The Fiscal Advisory Council said in a June report that its risk assessment of government spending largely hinges on the planned expenditure on energy subsidies, due to their magnitude as well as the uncertainty surrounding these outlays.

Both the European Commission and International Monetary Fund have warned that continued spending on the subsidy could have an impact on the government’s finances.

The council says the savings on the energy subsidies this year will be spent elsewhere by the government, instead of being used to reduce the budget deficit.

This difference between the original estimate and the latest projections could amount to a potential saving equalling 1.8% of Malta’s GDP.

The finance ministry did not respond to a request for comment.

How much are subsidies costing? 

According to the latest projections, the bulk of the €262 million will be spent on lowering energy prices, at a cost of €200 million. A further €47 million will be spent on fuel subsidies and €15 million will go towards a gas stabilisation fund.

The government’s original forecasts put the cost of subsidising electricity prices in 2023 at €500 million, while the fuel subsidy was estimated to hit €80 million.

Developments in international markets and changes in electricity prices can significantly influence the government’s forecasts, the council said. 

The latest projections estimate spending on the subsidy at €252 million next year and €242 million in 2025. These figures are also significantly lower than the original estimates of €505 million and €380 million for those same years.

Malta’s deficit is expected to narrow to 5% of GDP this year, falling progressively to 3% in 2026.

Apart from the fluctuating costs of the energy subsidy, the council identifies the future of Air Malta and potential associa­ted costs as another important fiscal risk.

A total of €60.1 million has been spent on early retirement schemes in a bid to reduce the national airline’s headcount.

The global minimum taxation level rules applicable to the multinational investor market could also effect Malta’s ability to retain its competitive position and potentially lead to deviations in the government’s fiscal targets, the council says.