Budget 2026: COLA increase of €4.66 a week, pensions to rise by €10 a week, tax cut for families with children

Finance Minister Clyde Caruana announced a major tax reduction measure aimed at families with children, with an overall cost of around €160 million. Approximately 68,000 parents are expected to benefit immediately, with thousands more set to gain in the coming years.

You can read the whole budget document by clicking on the link below:

Diskors-tal-Budget-2026

Tax Cut measure

This new measure will provide an average tax saving of about €2,400 per parent, spread over three years. This means the amount of tax paid will decrease year after year for three years and then remain at that reduced level permanently.

Families will continue to benefit until their youngest child reaches 18 years of age, or 23 years old if still in formal education.

Two new tax tables will be introduced:

• One for families with one child

• Another for families with two or more children

If one child in a two-child family exceeds 18 (or 23 if in education), the family will still benefit under the “one-child” tax rate as long as at least one child meets the criteria.

Currently, Malta’s tax system allows two main computations:

• Married Computation

• Parent Computation

Those who do not qualify for the new family-based reductions will continue under the existing tax rates.

Summary of Measures

€160 million total tax reduction for families with children.

Around 68,000 parents to benefit immediately.

Average saving: €2,400 per parent, spread over 3 years.

Tax decreases each year for 3 years, then remains constant.

Applies to families until the youngest child is 18 (or 23 if still studying).

New tax tables:

One for families with 1 child

One for families with 2 or more children

Existing Married and Parent computations remain for others.

Increase in Children’s Allowance and other benefits.

Since, as already announced, parents with children will benefit from a substantial tax reduction, this time the increase in the Children’s Allowance will be directed towards those families who pay the least tax or do not pay any tax at all.

In 2026, the income threshold determining higher-than-basic rates will increase from €27,434 to €30,000.

Additionally, the Children’s Allowance rate for families earning less than €30,000 will increase by €250 per child.

For families earning less than €23,000 net annually, an additional increase of up to €167 per child will apply, depending on income.

As a result, over four years, every family receiving the Children’s Allowance will have seen a total increase of between €590 and €1,007 per child.

This represents not only a larger increase than originally promised, but it will also complement the substantial tax cuts that parents with children will benefit from.

Moreover, there will be a further €75 increase per child as part of the government’s pledge to raise all In-Work Benefit rates by €200 by the end of the current legislature. Currently, the maximum In-Work Benefit stands at €1,550 per child.

An additional increase of €500 will be given in the Birth and Adoption Bonus. This means parents will now receive €1,000 for their first child, €1,500 for their second, and €2,000 for their third child or any subsequent children.

Social measures

Finance Minister Clyde Caruana said that government is responsibly increasing investment in social measures, introducing several new allocations and benefit rises that will strengthen assistance for pensioners, widows, low-income families, and others in need.

He also said that the COLA increase will be of EUR 4.66 per week.

Below is a summary of the key social benefit increases announced:

Increases in Pensions and Allowances

• €10 weekly increase in pensions for 100,000 pensioners — including those on retirement, disability, widow’s, and age pensions.

• Additional average increase of €3.50 per week for 7,000 widowed pensioners.

• €10 weekly increase in the allowance for around 1,000 widows who are still raising children, with eligibility now extended until the youngest child reaches 23 years old.

Supplementary Allowance Adjustments

• The maximum Supplementary Allowance will rise to €27.30 per week for couples and €14.40 for single individuals.

• The income thresholds will also increase to €20,000 for couples and €14,000 for single persons.

Additionally, the annual supplement paid to those aged 65 and over will increase by €100, reaching €250.
From next year, this payment will be made to both spouses once they each reach 65 — not just one, as was previously the case.

Cost of Living Bonus and Pension Equalisation

• Adjustments to the Cost of Living Bonus (COLA) will ensure fairness among pensioners who retired in different years.

  • 2026 will be the final year of differing COLA rates.

  • Starting 2027, all pensioners will receive a fixed weekly rate of €21.53, regardless of their retirement date.

• Around 5,000 pensioners will receive increases between €2 and €14 per week through corrections to married couple pension rates, eliminating discrepancies for those receiving minimum or disability pensions.

Service Pension and Non-Pension Bonus

• Service pensioners (former public service employees) will see a €200 increase in their commuted pension, raising it to €3,866.

• For those aged 72 and over, all service pension income will be ignored when calculating their social security pension, benefitting around 7,000 pensioners.

• Individuals not eligible for a pension will receive a €50 increase in their annual bonus, now ranging from:

  • €600 (for those with 1 year of contributions)

  • up to €1,050 (for those with 9 years of contributions).

There will also be various increases in carer allowances, disability pensions and other social services.