The European Commission would like Malta to wind down energy subsidies by the end of the year and believes the country should use that money to reduce the government deficit instead.
The advice is included in a package of recommendations the Commission made to the European Council, concerning various topics concerning all member states. The council is the grouping of EU leaders.
Commission advice is discussed at EU Council level, which generally adopts the package of recommendations as a whole. However, the advice is not binding on member states.
In its recommendations concerning Malta, the commission said that should renewed energy price increases necessitate support measures, the government should ensure that these are:
- targeted at protecting vulnerable households and firms;
- fiscally affordable; and
- preserve incentives for energy savings.
Malta is currently spending hundreds of millions of euro per year to subsidise the prices of electricity and fuel for households and businesses, cushioning locals from the impacts of higher energy prices.
Although the EU Commission believes Malta should be rapidly phasing out these subsidies, it does not believe the government will do so: in its latest forecast for Malta's economy, released just 10 days ago, it said it believes subsidies will be retained through 2023 and 2024.
Prudent fiscal policy
Malta, the commission said, should ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 5.9%.
It should preserve nationally financed public investment and ensure the effective absorption of Recovery and Resilience Facility grants and other EU funds, in particular to foster the green and digital transitions.
For beyond 2024, the country should continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, to achieve a prudent medium-term fiscal position.
The commission also said that Malta should continue the steady implementation of its recovery and resilience plan and proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.
It should also effectively address features of the tax system that may facilitate aggressive tax planning by individuals and multinationals, including by ensuring sufficient taxation of outbound payments of interest, royalties and dividends, and amend the rules for non-domiciled companies.
The commission said Malta should reduce its reliance on fossil fuels by accelerating the deployment of renewables, including offshore wind and solar energy, and upgrade and expand the capacity of the electricity grid system, including transmission, distribution and battery storage.
It should reduce energy demand through improved energy efficiency, particularly in residential buildings. Reduce emissions from road transport by addressing traffic congestion through improved service quality in public transport, intelligent transport systems and investing in ‘soft mobility’ infrastructure.
Malta, the commission said, should step up policy efforts aimed at the provision and acquisition of the skills needed for the green transition.