On the 24th of October 2022, Hon. Clyde Caruana, the Maltese Minister for Finance and Employment, presented the Budget for 2023. Set against a backdrop of geopolitical turmoil and widespread financial and economic concern, this year’s Budget was aimed at supporting local economic growth, particularly as the country navigates the post-peak of the pandemic.
This year’s Budget also featured different sustainability measures to mitigate short-term and long-term ecological impacts with widespread increased environmental concern.
In this article, we’ll first look at the current state of the Maltese economy, and we’ll then go through a summary of the key takeaways from this year’s annual appointment.
The State of the Maltese Economy
According to the Central Bank of Malta, the island’s gross domestic product (GDP) is expected to grow by 5.2% in 2022, 4.5% in 2023 and 3.7% in 2024. In contrast with previous predictions, these downward revisions mirror the increased inflationary pressures and the broader economic deterioration in international markets due to gas supply cuts experienced by most European countries. General Government Debt is expected to stand at 58.1% of GDP for the rest of 2022, fluctuating to 58.7% in 2023 and 58.8% in 2024.
Risks to inflation remain a concern for the remaining months of 2022 and the upcoming year—as a further international escalation in cuts to gas risks putting additional pressure on the prices of imported goods and freight costs. In September 2022, however, Malta registered one of the lowest annual inflation rates in the euro area. According to Eurostat, Malta’s inflation rate stood at 7.4%, contrasting with the 9.9% inflation rate registered in the euro area and 10.9% in the EU.
Meanwhile, the unemployment rate is set to decrease to 3.1% during the rest of this year, a 0.4% decrease from last year—and is expected to remain on the same levels in the next year, fluctuating slightly to 3.2% in 2024.
Malta Budget Key Takeaways
The following is a breakdown of some of the highlights announced during this year’s Budget, split into themes.
COLA and COLA Plus
This year’s Cost-of-Living-Adjustment (COLA), calculated automatically based on inflation and other cost-of-living indicators, will be €9.90.
Additionally, around 80,000 people around Malta and Gozo will receive the ‘COLA Plus’—an average of €300 per grant, paid to low-income people to help support them with the rising cost of living. These payments will be made before this Christmas.
Pensions
Pensioners will get a €12.50 increase per week—which totals €650 a year given to around 100,000 pensioners and includes a COLA increase.
The non-taxable ceiling on pensions will match the increase in pensions and will now increase to €14,968.
Social security and mental health
Social security payments for mental health care beneficiaries aged 18-30, absent from work for up to two years due to a mental-health-related issue, will be covered by the state.
Children and education
An increase of €90 per child in children’s allowance will impact around 41,000 families.
This Budget includes a tax rebate of €300 for those parents sending their children to sports, arts, or cultural activities to encourage extracurricular activities.
Tourism
Malta is set to attract around 2.1 million tourists by the end of this year, 81% of the pre-pandemic records registered in 2019.
In the coming year, we’ll see schemes being set out in collaboration with the Gozo Tourism Association to attract long-stay tourists to Gozo, particularly in the low season.
Plus, The Foundation for Tourism Zone Development will now be known as the Agency for Tourism Zone Development Regeneration, which will introduce a concept of Town Centre Management in Paceville, among its many other responsibilities.
Despite difficult decisions regarding Malta’s national airline, Air Malta, Finance Minister Clyde Caruana confirmed that the island will still have its own national airline going forward.
Property incentives
First-time buyers will receive a €10,000 grant if their property costs under €500,000. This scheme will be backdated to the 1st of January of this year.
First-time and second-time buyers will continue to benefit from duty exemption until the end of 2023. First-time buyers are exempt from duty on the first €200,000 of the consideration, while second-time buyers receive a refund on duty paid on the first €86,000 of the value of the replacement property. The duty rate of €2 for every €100 or part thereof in case of transfers inter vivos of residential property in Gozo will also continue until the end of 2023.
A VAT refund of up to €54,000 on the first €300,000 worth of expenses incurred for restoration and improvement can be claimed by persons owning eligible properties. This scheme will be backdated to the 12th of October 2021.
Those renting industrial property to develop a business activity will continue to receive subsidy assistance, increasing from €25k to €50k per year over six years.
Persons who derive income from a private residential lease which is registered with the Housing Authority as a long lease, are eligible for a tax rebate against the tax chargeable on such rental income. In his budget speech, it was announced that benefit scheme will increase, and be capped at €500 for a one-bedroom apartment, €600 for a two-bedroom apartment and €700 for a three-bedroom apartment.
The deposit scheme issued by the Housing Authority way back in 2020 was created to assist people who did not have the necessary liquidity to issue 10% deposit on the purchase of the property. This deposit was broadened to properties valued up to €225,000 from €175,000.
Properties located in a UCA, which had their construction completed at least 20 years before the date of the transfer, or are vacant on the transfer date and have been so vacant for a period of 7 continuous years immediately preceding transfer date, will continue to benefit from an exemption of tax and duty on the first €750.000 of the higher of the value and consideration of the property. These schemes are applicable to transfers up to the end of 2024.
A number of incentives were also proposed to enhance the quality and the aesthetic of the buildings in Malta.
Tax refunds
Tax refund cheques will be paid to eligible individuals, ranging from €60 and €140.
Businesses
Duty on transfers inter vivos of family businesses to descendants within the family will remain subject to a reduced rate of 1.5% of the actual value.
One-year extension of a temporary measure allowing entities with excess capital allowances resulting from pandemic-related losses to be surrendered to other group entities.
Authors and co-authors will be eligible for a 7.5% income tax rate on royalties from their literary works.
The Micro Invest scheme, encouraging undertakings to invest in their businesses, will be extended to social enterprises—which will see them eligible for a tax credit of up to €70,000 over three years.
Start-ups
A one-stop shop called “Start Up Malta” will be launched to help attract more start-ups to the country—and will grant entrepreneurs and organisations support and incentives to help them start their businesses in Malta.
ESG and Digitisation
In an era of widespread digitisation, a scheme called “Business Enhance” will grant a total of €40 million to SMEs around the country. Together with the EU-funded Digital Innovation Hub project, this scheme will help SMEs and start-ups switch to cloud computing and introduce the latest technology, such as AI, to their businesses.
Plus, businesses investing in digital projects will receive up to 50% of their investment back—with a cap set to €100,000.
To continue reducing their carbon footprint, enterprises in Gozo and start-ups will receive a tax credit of 20%.
A maximum tax credit of €40,000 will be given to companies investing in digital projects or projects that help reduce their energy and water consumption.
Electric car purchase incentives will increase to €12,000 from €11,000 for those scrapping their old car.
By 2024, the Government is set to install 1,200 additional electric vehicle charging stations.
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