Budget 2023

The thrust of the 2023 Budget presented in Parliament by the Minister of Finance, focused on bringing clarity and stability in an age of increasing uncertainty and challenges and thus sustaining the Malta’s economy in the midst of this situation to soften its fallout through incentives, social justice and sustainability.

Fiscal and Economic Review

After a severe contraction in 2020 and 2021 due to the COVID-19 pandemic, the Maltese economy recovered as expected in the first half of 2022 with recording a real GDP increase of 8.5%.  During the first half of 2022, Gross Value Added (GVA) in nominal terms registered a growth rate of 13.6 per cent over the same period in 2021, reaching a total of €7.2 billion.  This growth in GVA was predominantly driven by the services sector, which contributed 12.5 percentage points to GVA growth and, to a lesser extent, by the industrial sector which contributed 1.0 percentage points and the primary sector which contributed 0.1 percentage points.

From an external standpoint, in the first half of 2022, Malta also recorded a positive contribution from net exports of goods and services.  In the first six months of 2022, exports grew by 8.4 per cent which outweighed the increase in imports of 6.4 per cent.

The COVID-19 pandemic and the Russia-Ukraine conflict triggered major disruptions in global supply chains. The large dependency on third-party supplies for energy and fuel sources led to vulnerability in energy supply in Europe which was reflected in soaring prices for electricity and fuel. In August 2022, Malta’s 12-month moving average Harmonised Index of Consumer Prices (HICP) inflation rate was 4.3 per cent, whereas the annual rate stood at 7.0 per cent.

The population slowdown registered in 2020 was somewhat reversed in the subsequent year, wherein Malta’s population grew by 0.7 per cent. This growth was mainly driven by the increase in net migration during the same year. The labour market is exhibiting positive trends in terms of employment and activity rates, with an unemployment rate that has seen a constant declining trend.

As a result of the recovery from the repercussions of the COVID-19 pandemic, the number of employed persons increased by 12,980 during the second quarter of 2022, over the corresponding period in 2021.  The overall employment figure for the year 2021 totalled 280,469.  Furthermore, the latter figure is representative of a 77.5 per cent employment rate, indicating an increase of 2.7 per cent from 2020.  As of April 2022, foreign employees accounted for 29.5 per cent of full-time and part-time employees, increasing from the previous year (27.2 per cent). In absolute terms, foreign employees across all sectors increased by 10,701 individuals.

In 2021, the total value of imported goods totalled €6,635.1 million while exported goods amounted to €3,561.1 million.  This resulted in a widening of the trade deficit to €3,074.0 million, mainly attributed to the combined increase in imports and decrease in exports of mineral fuels, lubricants and related materials, and machinery and transport equipment.  When comparing the first seven months of 2022 to the same period in 2021, Malta’s total imports and exports increased by €1,310.1 million and €315.1 million, respectively.

The COVID-19 pandemic swung Malta’s current account balance to a deficit position from 2020 to the second half of 2022.  As domestic savings in this period were not enough to finance domestic investment, external borrowing and debt have increased.  In the second half of 2022, the current account balance as a percentage of GDP recorded a 3.7 deficit down from a deficit of 4.8 per cent in the first half of 2021.

Malta’s capital account has been in a net payment position over time as outward capital transfers significantly outweighed inward transfers. The net payment position as a share of GDP has been declining since 2019 and the ratio has halved in the first six months of 2022, reaching 0.4 per cent of GDP.  The current account deficit recorded in 2020 meant that foreign capital was transferred into Malta to finance the deficit. As a result, the financial account recorded a reversal from a net outflow position of €253.8 million in 2019 to a net inflow position of €309.6 million in 2020.  In 2021, despite an increase in capital inflows, the financial account recorded a net outflow position of €775.4 million

From 2017 to 2020, Malta’s Net International Investment Position (NIIP) averaged at 56.4 per cent of GDP. In 2021, NIIP stood at 52.8 per cent of GDP, reflecting a €0.1 billion decline in net assets, as assets increased by €11.6 billion, and liabilities increased by €11.7 billion.

In August 2022, the exchange rate of the Euro against the US Dollar fell to a multi-year low rate of $1.00. Influencing the strengthening of the US dollar against the Euro is the surrounding uncertainty in Europe.  The Euro-Pound Sterling exchange rate traded at £0.86 by the end of August.  The Euro-Yen exchange rate reached a value of JPY 138.72 by the end of August 2022. The Real Effective Exchange Rate (REER) depreciated to 103.20 in 2021, suggesting that Malta has regained some of its competitiveness losses from the previous year.  A relatively lower level of inflation in Malta when compared to that of our trading partners has also contributed to Malta’s improvement in the REER.

Between January and July 2022, the credit counterpart balance reached €22,345.5 million, increasing by 6.9 per cent in comparison to the level registered in December 2021.  Such development was mainly driven by positive contributions from credit to both local residents and to other EA residents.  In fact, in July 2022, credit to EA residents reached €4,354.5 million, reflecting an increase of 14.1 per cent compared to December 2021 while credit to Maltese residents increased by 5.3 per cent, standing at €17,991.0 million in July 2022.

As at end of August 2022, the Share Index of the Malta Stock Exchange decreased by 5.1 per cent to 7,649.0 in comparison to 8,062.1 registered in the same period of the previous year.  In contrast, market capitalisation in the equity market increased from €3,970.4 million as at August 2021 to €4,211.6 million as at August 2022. Total market capitalisation increased from €13,914.6 million to €14,491.5 million when comparing the first eight months of 2021 with the same period in 2022, thus representing a rise of €577.0 million.  This growth was driven by increases in the market capitalisation for equities, corporate bonds and T-Bills, whereas MGS registered a slight reduction.

The general Government balance for 2021 registered a deficit of 7.8 per cent, improving by 1.6 percentage points over the deficit of 9.4 per cent recorded in 2020. The debt-to-GDP ratio increased slightly to 56.3 per cent, from a rate of 53.3 per cent in 2020.

Tax revenue increased by 13.2 per cent, reaching €3,338.7 million as direct tax revenues increased by €207.8 million and indirect taxes increased by €182.4 million.  Non-tax revenues decreased marginally by €0.4 million.  The proceeds from income tax increased by 10.9 per cent while social security contributions increased by 11.5 per cent. Proceeds from personal income tax revenue and social security contributions were partly shielded by the effectiveness of the wage supplement scheme, which was terminated in May 2022, together with the resumption in economic activity, reflecting positive developments in the labour market.

During the period under review, revenue from indirect taxes increased by 16.9 per cent.  Revenue from Value Added Tax (VAT) increased by €177.7 million, reflecting the gradual economic turnaround, particularly in household consumption and tourist spending. Revenues derived from Customs and Excise Duties decreased by €5.3 million whilst Licences, Taxes and Fines increased by €8.9 million.

Total Government expenditure decreased by €1.3 million during the eight months to August 2022, as the recurrent expenditure increase of €39.8 million was outweighed by the drops in expenditure recorded in capital expenditure (€30.3 million) and interest on public debt (€10.7 million).

The fiscal and financial measures in summary include:

  • Cost of living increase of €9.90 to be granted to all employees, pensioners and individuals dependent on social benefits and students receiving stipends which would be paid pro-rata.
  • A weekly increase of €2.60 for pensioners in addition to the COLA of €9.90, thus bringing the total weekly increase for pensioners to €12.50 per week.
  • Around 80,000 individuals will benefit from a new COLA mechanism where they will receive additional COLA adjustments from Central Government without burdening the businesses.  This mechanism is expected to weigh those individuals who earn less than the Median Equivalised Income, which this year reached €17,796 per annum.  The beneficiaries are expected to receive the compensation before the end of the current year.
  • Pensioners will be assured that their annual pension income is not taxed in any way and the income ceiling exempt from income tax will reach €14,968.  For married pensioner couples, they will also be exempt on additional annual income of €3,600.
  • Pensioners born from 1962 onward, will also benefit from an exempt income ceiling from income tax.
  • Around 56,000 pensioners who retired after 2008, will benefit from a variable increase up to €1.50 per week in the form of cost of living bonus.
  • For service pensioners, the amount of pension income which will be ignored for the assessment of the annual social security pension, will reach the amount of €3,266 in 2023.
  • Widow pensioners will benefit from an average weekly increase of €3.54 in 2023.
  • Young widows will be in a position to receive social security benefits for unemployment, sickness and injuries, depending on the amount of contributions which they would have paid.
  • The equivalent of 104 weekly NI contribution credits for individuals who were being treated with mental illness between the age of 18 and 30 years, subject to being examined and treated by a psychiatrist or consultant employed with the Public Service.
  • Pensioners not having enough contributions to qualify for the social security pensions will see the benefit increase to €450 for those who had paid less than 5 years’ worth of contributions and €550 for those who had paid more than 5 years’ but less than 10 years’ worth of contributions.
  • A fund of €8 million voted to pay back arrears for injustices taking place with ex-employees working for the Corps, including apprentices and students.
  • Increase of €90 in the children’s allowances.
  • Fostering parents who choose to adopt a child, will keep on receiving part of the Foster Care Allowance, tapered for 4 years or until the child turns 21 years, whichever is the earlier.  The tapering will take place at 80% in year 1, 60% in year 2, 40% in year 3 and 20% in year 4.  This benefit will be in addition to the refund of €1,000 for cost of adoption and the children’s allowance entitlement for adopted children under 16 years of age.
  • Increase of €20 per month in the current monthly benefit to individuals suffering from coeliac conditions.
  •  Scheme 9 at school, will be able to choose from all the wide range of services offered and the current restrictions will be lifted.
  • Individuals currently benefiting from social assistance, will receive the full cost of living adjustment of €9.90 per week.
  • Tapering of unemployment benefit will improve by 10% so that an unemployed individual will receive 75% on the 1st year of employment, 55% and 35% in the 2nd and 3rd year respectively.
  • Individuals currently receiving unemployment or sickness benefits, would now be in a position to receive also the non-contributory medical assistance benefit.
  • Substantial increase in the Carers Grant from €500 to €4,500 per annum.
  • Reform in plan for Personal Assistants to persons with special needs, based on the European Network for Independent Living.
  • An annual tax credit of €200 for each child with special needs on account of therapeutic expenses.
  • Subsidy of 20% on the price of a new motor vehicle specially designed to be driven by individual using a wheelchair.  In the case of a modified second hand motor vehicle, the subsidy will amount to 10% of the total cost of the modified motor vehicle.  The acquisition will benefit also from registration tax as long as the vehicle emits less than 180g of CO2.
  • For individuals benefiting from contributory credits, and are also eligible for the Allowance for Carers scheme, and who paid an average of 20 annual contributions over their employment periods, the average will now decrease to 15 annual contributions.  Those who would still not qualify, will be granted the equivalent of 4 years’ NI contribution credits.
  • Individuals benefitting from the Allowance for Carers scheme, may have the opportunity to pay 5 years’ worth of contributions as from the age of 59 years, so that they may improve their annual social security pension entitlement.
  • Individuals who prove to have been living together for at least 10 years, would be automatically registered as co-habiting couple and qualify for the Allowance for Carers scheme.
  • Single individuals qualifying for the Allowance for Carers scheme, and living on social security benefits, would no longer experience a reduction in the said benefits just because they started qualifying for the Allowance for Carers.  This measure is effective 1st January 2023.
  • €3.1 million investment for the acquisition of CT Scan and ultra sound equipment, as well as other infrastructural improvements and St. Vincent de Paule residence for the elderly.
  • Increase in the financing of incentives to encourage independent living and activities by the elderly.
  • A grant of €10,000 for first-time buyers acquiring an immovable property not exceeding €500,000.  The grant will be payable over a period of 10 years.  This measure is effective for properties acquired since 1st January 2022 and will be operated in conjunction with all local Commercial Banks.
  • The value of immovable property eligible for the Deposit Payment Scheme (assisting first time buyers to finance the 10% deposit on bank loan) will increase from €175,000 to €225,000.
  • Revision in the rental cost capping to €500 per month for single bedroom, €600 per month for two bedrooms and €700 per month for three bedrooms.
  • Tax Refunds are expected to be distributed between €60 and €140 as follows:
Single Tax ComputationTax Refund
Taxable Income2023
€0 – €15,000€125
€15,001 – €30,000€95
€30,001 – €59,999€60
  
Married Tax Computation2023
Taxable Income 
€0 – €20000€140
€20,001 – €40,000€110
€40,001 – €59,999€65
  
Parent Tax Computation2023
Taxable Income 
€0 – €15,000€135
€15,001 – €30,000€105
€30,001 – €59,999€60
  
  • Individuals with atypical hours working in certain sectors of the economy will continue to receive the €150 the in-house work benefit.
  • The reduced tax rate of 15% currently benefitting authors and co-authors on royalties received from the sale of their books will be reduced to 7.5%.
  • Paternity leave is being increased to 10 fully paid leave days;
  • A two-month parental leave (for every parent) is being introduced.  This parental leave will not be paid in full but will be paid at the same rate of the sickness benefit.
  • Individuals who look after or care for a relative or any other individual residing in the same residence will be entitled to 5 days of unpaid leave.
  • The programme of distributing fresh fruit and vegetables to primary school children will be re-introduced with the hope to extend this service to secondary schools.
  • All Year 7 students will receive a new laptop as from next scholastic year (2023/2024).
  • Current scholarships and tax credits with respect to students who wish to further their studies to masters and doctorate levels will remain in place and re-enforced.
  • There will be an extension in the following schemes: Youth Guarantee, Training for Employment, Investing in Skills, Access to Employment and VASTE.
  • Construction works on the new campus of the Institute of Tourism Studies in Smart City will commence in the coming days.
  • In 2023, there will be a €5 million investment in research and development, mainly in the ‘Technology Extension Support’ scheme. Malta also intends to expand its involvement in the Horizon Europe scheme – the EU’s key R&D programme – and strengthen the National STEM Community Fund.
  • One-Stop Shop scheme with the name “Start in Malta” to assist start-ups to establish themselves in Malta as well as to assist in the form-filling of application forms related to schemes administered by Malta Enterprise and other entities.
  • New schemes under “Business Enhance” will offer cash grants of approximately €40 million to small and medium sized enterprises.
  • Malta Enterprise will also give financial aid to Maltese companies which invest in digital and sustainable projects – the cash grant will cover 50% of the eligible investment up to €100,000.
  • Gozo businesses as well as start-ups will continue to benefit from additional financial aid of 10% in the form of a tax credit – this can be doubled to 20% if the companies invest in projects that reduce the carbon footprint of the operations.
  • Maltese entities can benefit from a maximum tax credit of €40,000 when investing in digital projects, projects that reduce energy and water consumption or in investment that reduces material wastage or waste disposal.  All these tax credits are beneficial to all entities (small and medium sized), self-employed individuals and family businesses.
  • The scheme for group of companies which had capital allowances that were not absorbed or utilised during the years 2020 and 2021 due to losses incurred in the COVID19. pandemic can once again benefit from using these capital allowances against taxable income of other companies that form part of the same group for basis year 2022 (Year of Assessment 2023).
  • Maltese entities may benefit from a rent subsidy of €50,000 instead of €25,000 for each of the first three years of this financial aid.  The scheme will be extended from three years to a maximum of six years.
  • Micro Invest Tax Credit Scheme will also be available to Social Enterprises – they will be able to benefit from a tax credit of a maximum amount of €70,000 spread over a period of three years.
  • The concession on the reduction of duty from 5% to 1.5% on transfers inter vivos in family businesses will be extended again.
  • Shops whose property is owned by the Government and which are paying rent or ground rent and are not located in Valletta, will once again benefit from a 45-year extension of the ground rent.  
  • Persons buying or selling property which has either been built for more than 20 years and has been vacant for more than 7 years or property situated in an Urban Conservation Area (UCA) shall continue to benefit from the exemption of Capital Gains and Duty on the first €750,000 of the property price. This exemption shall be extended for a further 2 years.
  • The schemes for deduction in duty for first-time buyers, second time buyers and purchase of properties in Gozo shall also be extended.
  • The extension of the existing Electric Vehicle Grant Scheme whereby any person buying an electric vehicle, including motorcycles, shall be entitled to a grant of €11,000. This applicable grant may be increased to €12,000 if the Scrappage Scheme is availed of.
  • The scheme incentivising the purchase of mopeds, pedelecs and electric bicycles has also been extended.
  • The maximum grant from the Scrappage Scheme shall remain €2,000.
  • Schemes incentivising the purchase of lower-polluting petrol scooters or motorcycles shall be extended along with the grant for those who retrofit their vehicle to operate on LPG instead of petrol.
  • Electric vehicles and plug-in hybrids shall be exempt from registration tax and annual payment of road licence for a period of 5 years commencing from the date of initial registration.
  • Extension of the financial incentive to promote the installation of photovoltaic (PV) panels on passenger vehicles. The maximum grant is that of €900.
  • Extension of financial incentives for minibus, coaches and truck operators who retrofit their vehicles with DPFs and SCRs.
  • Schemes incentivising the installation of solar panels, heat pump water heaters, solar water heaters and the restoration of private residential wells shall be extended.
  • The allocation of 8MW as a Feed-In Tariff Scheme for PVs of less than 40kWp for houses.
  • The extension of the FIT scheme for residential homes for 20 years.
  • Interest-free loans for companies and businesses that switch their fleet of vehicles to electric.
  • Financial grants under the Recovery and Resilience Plan for renovations of commercial buildings to make them more climate-friendly shall be extended.
  • Three draft legal notices which will make the current existing journalism profession more robust while giving more protection to journalists during their course of work.
  • Better use of administrative space in the Courts of Justice with new court rooms to increase the sittings with the aim of reducing the length of the case settlements.
  • Enhanced procedures used for family justice courts and new reforms in the magistrates’ courts.
  • From next January, Malta will have a non-permanent chair in the Council of Security of United Nations, for the second time in history.
  • Malta will keep on working on bilateral, economic and commercial relationships, especially in South America.
  • Works are being carried out on a building for the Asset Recovery Bureau designated to be equipped with a laboratory of latest technology that will have a built-in laboratory to trace assets and will be able to hold and preserve confiscated assets. 
  • As from 2023, the maximum amount which can be claimed in the Customer Claims Tribunal shall amount to €5,000.
  • Enforcement Officers who opt to continue working after the lapse of 25 years of service, will increase their pension by 23% after 4 years of additional service.  A service pension of 5 years for widowers of Enforcement Officers who become missing before the lapse of 25 years of service or during the period between the end of service and retirement age;
  • The Armed forces of Malta is investing into a Virtual Small Arms Training Simulator with a value of €1.3 million as well as new building and facilities with an investment of €12 million.
  • Entities such as FIAU, Malta Business Registry, MFSA, Policy, Tax department, Asset Recovery Bureau and others will continue to receive the required support to keep working in the most effective way ensuring that licensed entities are not established in Malta for money laundering and financing of terrorism;
  • Malta will take part in the London Design Biennale to serve as a showcase in the artistic and creative sector in Malta, while also works are underway for the participation in the Biennale of Venice in the next edition of 2024;
  • Studies are underway for a pilot project whereby students will have at least one sports lesson a day;
  • Plans for the building of a car racing circuit in Hal Far, upgrading of Marsa Sports Complex, completion of Olympic Size pool in Bormla and new facilities at Maria Assumpta School in Hamrun.
  • Tax rebate increased from €100 to €300 per year per child for parents who send their children to sports, arts and cultural activities.

Disclaimer

The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.