Yesterday, Nationalist MP and Shadow Minister for Finance Graham Bencini published a post on the government’s finances where he said that the government is spending up to €590,000 daily on interest rates on around €9.5 billion in debt, €4 billion of which have been accumulated during Robert Abela’s administration. Now, of course interest rate payments are high because interest rates are also relatively high, but still, it is alarming that the national debt has shot up so fast. Basically, Robert Abela has added more than €1 billion in debt every year during his administration at an astounding and roughly 100% increase in the national debt. Malta’s debt to GDP does not look alarming, yet, but what it is alarming is that it has increased at a fast rate from 40% in 2019 to more than 54% in 2024.
In order to get some perspective, a comparison with 2019 would give a clearer picture of what’s going with our public finances. Other European countries didn’t go to this path. Italy’s debt shot from €2.6 trillion in 2019 to €3 trillion by 2024, an increase of around 12%. Spain’s debt rose from €1.3 trillion to €1.7 trillion, an increase of nearly 31%. Cyprus’ debt rose from €22.9 billion in 2019 to €24.1 billion in 2024, an increase of 5%. Slovenia’s debt rose from €31.1 billion in 2019 to €43.1 billion in 2024, an increase of 38.5%. Malta seems to have been pressing that gas on the national debt.
So why is the government spending more? Again, comparing 2019 with the present will give a better indication. Firstly, government revenue for 2019 was €5.5 billion and in 2023 the government managed to collect a total of €8 billion. Most of this revenue comes from taxes mostly from income tax and VAT. The revenue increase, coming again, mostly from taxes, is substantial at a 45%. Government expenditure has increased from €5 billion in 2019 to €7.4 billion in 2023 a 48% increase. The massive increase in debt seems to partly have come from the Covid Pandemic as the government has spent substantial amount of capital during the lockdown while revenue declined by 7% in 2020. Despite the massive increase in government expenditure, private consumption still decreased.
Today, the economy seems to be running on 2019 levels. Malta’s population has increased from 504,062 in 2019 to 536,740. Private consumption rose from €6.1 billion in 2019 up to €8 billion in 2024 and this is the main driving component of the Maltese economy. Private consumption has increased up to 31% from 2019 while the population increased at around 6.%. However there are many problems with these figures. So before proceeding I will point the issues.
Firstly, the government debt listed officially is lower than the actual debt because it doesn’t include debt by government owned companies including AirMalta and Enemalta. Secondly, an increase in private consumption, although a positive indicator for the economy, is not necessarily an indicator that people are living better lives since it can also be the case, that consumption levels are increasing only with some sectors of the population, namely those that are getting richer. The population which is not getting richer, mainly half of the workforce which lives on the average wage or less, may actually be experiencing a brutal reduction in its propensity to spend.
Moving on again onto government finances, we can easily see where the increases today are materialising. For starters, the Prime Minister has surely increased his budget substantially. One of the noteworthy increases is in health where recurrent expenditure has increased from €638 million in 2019 to an estimated of €1 billion for 2024. Recurrent expenditure in education has also shot up with €590 million in 2019 and an estimated expenditure of €848 million in 2024.
If you start adding the peripheral ministries you notice expenditure increased across the board such as for example with the Ministry of Economy that issues subsidies and grants through Malta Enterprise which had a recurrent expenditure of just €22 million in 2019 and a capital expenditure of €36 million, with the estimates of 2023 being €62 million and €63 million respectively. The expenditure increase of some ministries seems very difficult to justify and this is were the rent-seeking and corruption comes in. The Ministry of Tourism spent €110 million in recurrent expenditure in 2019 and is spending up to €149 million in 2024. Its capital expenditure for 2019 was €28 million and for 2024 will be €63 million. The Film Commission, famous for its extravagant expenditure now falls under the Ministry of Culture.
There are various factors why government expenditure has shot up so much and so fast. Firstly, interest payments are high and the government will be paying up to €270 million to service all of its debts. The pandemic left a big hit on public finances and corruption and extravagant expenditure within peripheral ministries such as the Ministry of Tourism collectively add up to a bigger bill. Adding to these factors, there is also the unaccounted debt of Enemalta and other government-owned companies.
Fundamentally, apart from the rent-seeking regime, what weighs down public finances is the lack of strategic thinking and rampant incompetence. The Minister for Energy, Miriam Dalli is especially known for this trait. The bill for the Ministry of Energy has increased multiple times from €89 million in recurrent expenditure in 2019 to a whopping €596 million planned in recurrent expenditure for 2024. Note that this does not include the capital expenditure which for 2024 the bill will be more than €200 million. Does Miriam Dalli actually pretend to be leadership material after this mega-horrible track-record?
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