Malta

Malta’s fiscal position remains under strain despite strong economic growth. After being placed under the European Commission’s Excessive Deficit Procedure, the general government deficit narrowed from 4.7% of GDP in 2023 to 3.7% in 2024, and is projected to decline further to below 3% in 2026. This improvement reflects stable energy subsidies in absolute terms and efforts to enhance tax collection. Public debt remains well below the Eurozone average (47.6% of GDP in 2025), and is expected to stabilize around the current level until 2027, ensuring short-term resilience. However, interest expenditure is rising, reaching 1.3% of GDP, and the cumulative growth of net expenditure in 2024–2025 exceeded the recommended path under the Excessive Deficit Procedure, signaling limited fiscal space. 

Malta faces significant structural pressures on public spending. Age-related expenditure is projected to surge from 16.7% of GDP in 2024 to 25.6% by 2070, the second-largest increase in the European Union. Pension spending alone is expected to rise by 4.4pps, while healthcare and long-term care will add 2.2pps and 2.3pps, respectively. These trends pose major sustainability challenges, compounded by the absence of recurrent property taxation and limited efficiency gains in long-term care. Fossil-fuel subsidies – amounting to 1.6% of GDP in 2023 with no phase-out before 2030 – further constrain fiscal flexibility and delay the green transition. 

Malta’s tax-to-GDP ratio remains among the lowest in the EU at 26.6%, reflecting low reliance on labor taxation and high dependence on corporate income tax. This narrow base makes fiscal revenues highly sensitive to cyclical shocks and profit-shifting practices. The corporate tax system, characterized by refund mechanisms, absence of withholding taxes on outbound payments and preferential regimes for non-domiciled entities, creates reputational risks and exposure to aggressive tax planning. These features, combined with high FDI flows and the presence of captive financial institutions, raise concerns under EU tax fairness frameworks.  

Malta remains a politically stable parliamentary democracy, ensuring continuity in core policies and low systemic risk. However, governance vulnerabilities persist: corruption scandals, weak enforcement of planning laws and an opaque justice system have eroded institutional credibility, with Eurobarometer surveys showing over 90% of citizens perceive corruption as widespread.  

At the same time, rapid demographic change adds complexity. Malta’s population has surged by roughly 25% since 2015. Yet the island is now the EU’s most densely populated state, facing infrastructure bottlenecks and housing strain. In response, the government has signaled tighter migration controls, particularly for non-EU workers, with new restrictions and stricter work-permit rules announced in 2025.