Fiscal Council endorses government's 2026 economic forecasts
The Malta Fiscal Advisory Council (MFAC) has endorsed the government’s fiscal projections for 2026, concluding that they fall within an acceptable range and are consistent with the assumptions outlined in the Annual Progress Report 2026.
In its assessment, submitted to the Minister for Finance on 18 June, the Council described the forecasts as credible and based on the information available at the time of evaluation.
While approving the projections, the MFAC cautioned against using one-off or exceptional revenue gains to finance permanent expenditure. Instead, it recommended that such windfall revenues be channelled towards investments that enhance productivity and strengthen the country’s fiscal buffers.
The Council noted that Malta’s fiscal performance in 2025 exceeded expectations. The general government deficit stood at 2.2% of GDP, significantly below both the government’s target of 3.3% and the Maastricht threshold of 3%. The stronger-than-expected result was largely driven by increased tax revenues, particularly from income and wealth taxes.
Looking ahead, the Ministry for Finance expects the deficit to narrow further to 1.6% of GDP in 2026, while the debt-to-GDP ratio is projected to decline from 46.4% to 45.8%. According to the Council, Malta is expected to remain compliant with the Maastricht fiscal criteria and, based on the European Commission’s Spring 2026 forecasts, could see its Excessive Deficit Procedure lifted.
However, the Council pointed out that Malta’s compliance with the EU’s revised fiscal framework remains mixed. Although net expenditure growth remains within the limits established in the country’s Medium-Term Fiscal-Structural Plan, cumulative deviations from the agreed expenditure path continue to exceed the threshold established under the control account mechanism.
The MFAC said that substantial capital transfers made in 2024, including support provided to the national airline and major infrastructure projects, continue to affect Malta’s compliance with cumulative expenditure requirements under the EU’s preventive fiscal framework.
Assessing the outlook for 2026, the Council said risks on the revenue side appear broadly balanced, while expenditure risks are skewed to the upside. Spending pressures related to intermediate consumption and social benefits could prove higher than currently projected, potentially limiting the extent of the expected improvement in the fiscal deficit.
The report also highlighted Malta’s growing dependence on income and wealth taxes, which now account for more than 43% of total government revenue, exceeding both EU and euro area averages. While this has supported strong fiscal results, the Council warned that it increases revenue concentration risks, particularly as corporate income tax becomes a more significant contributor.
Among its recommendations, the MFAC urged the government to continue strengthening public revenue through effective monitoring, a broader tax base and policies that safeguard Malta’s competitiveness. It also reiterated that any unexpected revenue gains should be directed towards investment and fiscal resilience rather than recurrent spending commitments.
The Council further called on the government to accelerate legislative amendments needed to transpose EU Directive 2024/1265 and align Malta’s Fiscal Responsibility Act with the updated European fiscal framework. It noted that Malta has yet to implement the directive despite the deadline having passed at the end of 2025.
Finally, the MFAC stressed the importance of using fiscal policy to address long-term structural challenges. It argued that greater investment in infrastructure, education, skills development and innovation would boost productivity, support higher-value economic activity and strengthen Malta’s long-term growth prospects.
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