Clyde Caruana delivered the first national budget of the new legislature on Monday, announcing measures to maintain stability and help the vulnerable amid unprecedented inflation and global economic uncertainty.
No major surprises were announced in another marathon budget speech, though a number of measures were introduced to help low-income earners and pensioners remain afloat during a wave of rising prices.
As envisaged, the weekly Cost of Living Allowance will reach an all-time high of €9.90 a week to help workers supplement their salaries in an economy jolted by the devastating impacts of COVID-19 and the Ukraine invasion.
From the outset, Caruana set the stage for his two-hour, 45-minute speech: “The events that happened in the last three years normally take place over a span of decades,” he said.
Caruana said the government’s commitment to maintaining a freeze on energy and fuel prices had stopped bills from shooting up by 130% and halted the decimation of economic growth.
Subsidising energy saving €2,000 per couple - Caruana
Spending on energy next year will reach a staggering €508 million, 9.3% of the government’s recurrent expenditure.
The minister explained that a budget dominated by tax cuts would have saved families with two working adults €510 a year, while subsidising energy costs will save them €1,300 in electricity costs and €700 in car fuel.
Caruana announced a raise for all pensioners of €12.50, up from €5 this year, an increase in children’s allowance, as well as a €3.50 weekly increase for government employees and government-contracted workers.
In a measure intended to encourage people to keep working past their pensionable age, Caruana said 40% of pensioners’ pension will be ignored by the taxman, up from 20% this year.
A gift before Christmas
Some 80,000 vulnerable people from 37,000 households are to receive an extra cost-of-living adjustment grant, which will average around €300, in time for Christmas.
One-off 'tax refund cheques' of between €60 and €140 will once again be given this year.
An electoral pledge to give a €10,000 grant to first-time property buyers will come into effect, while other property schemes will be retained.
There will be increased government assistance for those eligible for rent subsidy, while students will get a €50 annual stipend increase.
The minister pledged to carry out the government’s pledged record expenditure of €700 million over seven years on the environment and said there will be a bigger drive to shift open-air car parks underground.
Caruana is projecting a slower economic growth rate for next year at 3.5% in real terms, down from 6% this year.
One noticeable cut comes in road investment with the minister saying in a pre-budget briefing that spending on the roads will slow down to €90 million from €120 million.
The deficit is expected to be 5.8% of GDP this year, more or less in line with projections, and is expected to reach 5.5% next year. The figure was achieved despite the huge spending on energy and the fact the budget did not introduce new taxes or raise existing ones, the minister said.
Inflation to peak at 5.7%
Inflation, he said, will peak this year at 5.7% before slipping to 3.7% in 2023. That will come about due to an expected increase in interest rates in the US and the EU.
On government spending, the minister said recurrent revenue is back above recurrent expenditure. Capital expenditure next year will be €920 million, thanks to EU funds which account for a third of the total. The debt next year will rise to 59.1% of GDP from 57% this year.
Caruana’s parting shot harked back to the energy crisis, insisting that around Europe, families on a low income are being destroyed by hefty energy bills. “Poverty in these countries is rearing its ugly head. Our heart was and remains a socialist one.
"... We will tell families we're behind you. We will remain a fortress to protect you from the trouble sourced from overseas. We will not perform miracles, but we will work relentlessly."
In initial reactions, the budget was lauded for cushioning against the energy price shocks but businesses said it had failed to come up with long-term strategies.