Budget 2021: Weathering the economic storm

While COVID-19 dealt a major blow to government finances, increased government spending will continue through next year to help ease the negative impact of the virus on household

Finance Minister Edward Scicluna
Finance Minister Edward Scicluna

The theme for this year's budget is "Strongly Moving Forward". While COVID-19 dealt a major blow to government finances, increased government spending will continue through next year to help ease the negative impact of the virus on household. The budget comes with a stimulus package of €100 million that includes €50 million in vouchers.

Malta's debt-to-GDP ratio is projected at 58.1% of GDP through 2021, and will remain below 60% until 2023. The deficit is expected to stand at 9.4% of GDP for this year, droopping to 5.9% in 2021.

Due to the suspension of the EU's Stability and Growth Pact, Malta has plenty of legroom in terms of fiscal policy design and debt accumulation, allowing government to maintain the current tax regime for the coming years.


Government’s voucher scheme will be extended further with a new round of vouchers to be received by families in the coming days.

Finance Minister Edward Scicluna said government will be handing out €50 million worth of vouchers.

The vouchers will be received by everyone aged 16 or over, and will be issued in January.

A total of €100 in vouchers will be received by every individual. €60 will have to be spent at restaurants, while €40 on other services and goods.


Last year’s €9.4 million surplus, standing closer to 0.5% of GDP, will likely not be seen until past 2022. This year’s figure illustrates a deficit of a whopping 9.4% of GDP, decreasing to a 5.9% deficit in 2021. However it’s this high level of government spending that will allow for a projected 5% growth in real GDP, keeping any impending recessions at bay.

The effect of the pandemic on government funds is most clearly seen in the consolidated fund balances. Last year’s approved estimates projected a €113 million surplus in the government’s consolidated funds, but major spending brought on by the pandemic defied these estimates in favour of a €1.2 billion deficit.

Registering a 59% debt-to-GDP ratio and 5.9% deficit during a pandemic is no easy feat, but the government’s diet helicopter money programs, like the voucher scheme and tax rebate initiative, seem to be helping Malta sail through the stormy seas while even the EU’s economic giants seem to be taking a battering.

The suspension of the Stability and Growth Pact allows the government even more leeway by not having to adhere to the strict 60% debt and 3% deficit limits – even though Malta seems to be well within the SGP limits when it comes to the debt ratio, less so with the deficit.

The major advantage of such a robust debt ratio is the flexibility it grants in Malta’s tax regime. Government is afforded the liberty to borrow more in the future if the situation necessitates it, thus not having to resort to raising taxes and increasing the tax burden.

On top of this government can maintain its current tax regime that has kept Malta competitive and attractive in the global economy.

Among the macroeconomic winners and losers during the pandemic, Malta seems to be ranking high.

Key measures affecting business and the economy

Extra Day Leave

Workers get to enjoy a fourth day of leave as part of Labour’s manifesto pledge to remove the 2005 law that removes public holidays when they fall on weekends. Workers will therefore have 28 days of leave a year.


Government will hand out €50 million worth of vouchers. Each person aged 16 and over will receive €100 in vouchers. €60 will have to be spent on restaurants and €40 on other services and goods.

Business initiatives

Malta Enterprise will continue to strengthen initiatives related to start-ups, online selling, and schemes to strengthen innovation among companies that employ less than 50 people. New foreign investment schemes will also be announced.


Increase of €1.75 per week. Pensioners however are getting a total of €5 a week, an additional €3.25

No new taxes or increases in excise and duty

This is historically Malta’s fourth consecutive budget which includes no increase in personal income tax. VAT and excise taxes will also see no increase next year.

Green Economy

Climate change strategy to achieve low carbon society will be released. Green bonds to finance projects linked to environmental projects will be issued.


There will be an emphasis on rebuilding tourism with the aim of reaching a net carbon neutral sector. Schemes to cover marketing and events.

Air Malta

Government has formally filed state aid application with European Commission to be able to give airline financial assistance.


Existing schemes providing incentives for jobs in Gozo will be strengthened. Emphasis will be placed on infrastructural works and connectivity through a fast-ferry service.

In-work benefit

Higher thresholds will result in 4,500 new families receiving this benefit.

New disability benefit

Parents who stop from work because of children with a disability and are currently entitled to a disability allowance will receive an additional benefit of €300 per year.

Property tax

Tax reductions on the sale and purchase of properties announced in mini-budget last summer will be extended to promise of sale agreements signed until the end of March 2021, with a final contract due by end December 2021.

First-time buyers

The tax-free portion for first-time property buyers will increase to €200,000 from €175,000.

Book royalties

Royalties on the sale of books will be taxed at flat 15%.

VAT exempt

VAT exempt threshold will increase to €30,000 from €20,000.

Single-use plastics

Importation of single-use plastics will stop next year and retail sales will end in 2022.

EU funds

EU COVID cash grant of €120 million will start coming Malta’s way and this will be used to finance the wage supplement. Malta will also benefit from the EU’s recovery programme to the tune of €220 million that will be project-based funds.

How Budget 2021 was received

GWU: Budget gives security, stability and peace of mind

Economic prudence and fiscal discipline over the past few years has enabled government to present a budget with no tax increases, the GWU said.

It welcomed the extension of the COVID wage supplement, the increase in the in-work benefit and measures to help the most vulnerable, including pensioners and the disabled.

The GWU also welcomed the compensation for former drydocks workers who got sick as a result of asbestos.

MDA: Proposals ‘welcome’

The Malta Developers Association has been welcoming of the budget proposals. They praised the decision to extend the First Time Buyers scheme as well as the introduction of lower taxes for property buyers and sellers. They noted that initiatives towards higher investment in sustainable machinery and other incentives favouring the green economy as a “step forward in tune with the MDA’s overall vision.”

“The announcements are a step forward so that the property market and other important sectors such as the renewable energy section, all represented by the MDA, continue to contribute towards the sustainable development of the Maltese economy at large while giving a much-needed input towards a rapid boost and increased confidence in the current difficult economic scenario,” MDA said.

Malta Employers Association: Welcomes stimulus, cautious on growth projection

MEA has expressed cautious on the 5% growth projection for next year due to uncertainty on the duration of the pandemic and the Moneyval verdict.

The MEA described the budget as “a sprinkling of benefits and fiscal incentives targeting various sectors of society”, aimed at “stimulating local demand.”

It has also welcomed the “effective” increase in pensions, the increase in VAT exempt thresholds from €20,000 to €30,000 for businesses and a renewed voucher scheme.

However, the MEA shot down the increase in optional leave, which it described as a “frivolous measure” which will erode competitiveness.

Malta Chamber of SMEs: Thumbs up for wage supplement but no VAT cut

The Malta Chamber for SMEs expressed a positive verdict on the extension of wage supplements and other incentives introduced during the pandemic.

But the chamber expected more tax incentives to be included in the budget including a decrease in VAT rates, which would have served to boost new investments.

MHRA: Budget that helps tourism industry survive

The Malta Hotels and Restaurants Association (MHRA) said government delivered a budget which averts the worst effects in the near future being caused by the pandemic. MHRA expressed confidence that measures will be taken to speed up the recovery as soon as the pandemic subsides.

The association welcomed the extension of the wage subsidy to employees working across the travel, tourism, and hospitality sector till March 2021. “This is a key measure which in the circumstances is being considered as a vital lifeline by MHRA members,” the association said.

The association said the extension of the vouchers scheme was important to sustain the operations of hotels, restaurants and other economic sectors.

It also welcomed the various initiatives aimed at improving the environment and quality of life of all citizens, and the emphasis on green developments and schemes to mitigate the effect of climate change.

It described the budget as ambitious and in the right direction. “The budget is allowing for enough space and ability to craft further action as may be necessary at the most appropriate time,” the MHRA said.

GBC: Measures to enhace consumption welcome

The Gozo Business Chamber welcomed the economic stimulus provided through the Budget, especially the measures intended to enhance consumption in targeted economic areas.

The €100 vouchers was a measure which has impacted positively the Gozitan economy, and the Chamber expects that this measure will again prove beneficial for the island. The GBC also welcomed the extension of existing schemes on property purchases and sales.

The Chamber notes the measures targeted towards business continuity principally: the extension of the reduced stamp duty to 1.5% on the transfer of family businesses; the increased  VAT  threshold exemption for small operators,  from  20,000  to 30,000 euro; the extension of the COVID-Wage Supplement till March 2021; and the continuation of the schemes currently implemented by the Ministry for Gozo in various economic sectors.

GTA: Budget’s focus on green economy and digitalisation can help Gozo diversify

Expecting the reintroduction of financial measures taken during the pandemic, the Gozo Tourism Association noted the renewal of the vouchers and wage supplement schemes, which will “help the tourism establishments endure the winter months.”

The GTA more happily notes that their proposal for the updating and renewal of the Diving Master Plan for Gozo was included in the Budget document.

“This budget is evidently focusing and concentrating on green economy and digitalisation. The Gozo Tourism Association believes that the Island of Gozo can optimise on these two niches and thus start slowly to diversify its economy, which presently is heavily dependent and reliant on the tourism sector,” GTA said.

FORUM: No new burdens on workers

Forum Unions Maltin commended the government for not only recognizing the difficulties brought on by the pandemic but also for not imposing any new burdens on workers.

They praised the government for building on existing initiatives, including the extension of the wage supplement and vouchers schemes. Among the proposals is an extra day of leave for when holidays fall on weekends, an initiative originally proposed by For.U.M.

However, the forum expressed their disappointment over the failure to fulfil an election promise to allow parents to utilise their sick leave when their children are ill.

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