Editorial | Sustaining and strengthening a fragile recovery

The post-pandemic recovery was always going to be fragile and gradual in the face of continued international uncertainty.

Malta’s fortunes are no different to those of other countries in mainland Europe given the strong economic and commercial linkages that exist.

Budget 2022, delivered by Finance Minister Clyde Caruana is a reply to the challenges the country could expect to face in the coming year and beyond.

It is important to first understand the context.

After the scare created by a new COVID-19 variant in the summer that caused some countries to rethink reopening strategies, countries now face the prospect of surging energy prices that threaten to stifle industrial production and erode household incomes. Port congestion and higher freight costs are also a worldwide problem.

In Malta, the handling of the pandemic has reaped very positive results and if the situation remains unchanged, the remaining measures could very well be lifted in the next couple of months. With a vaccination rate above 93% and the rollout of booster doses underway, Malta has managed to keep the virus at bay.

On the energy front, the country so far remains insulated from surging gas prices as a result of the five-year fixed agreement between Enemalta and Electrogas. But this expires in April next year and could usher in higher electricity prices for industry and households.

And freight costs are a headache for importers and exporters.

The budget makes it clear that Malta’s investment on health services will remain strong and no punches will be spared in the fight against COVID. But the budget also addresses those areas in healthcare that fell back as a result of the pandemic, such as hospital waiting lists.

On the energy front, Caruana has committed to cushion any blow that may come Malta’s way next year by pledging to increase the deficit by up to 1.4% of GDP.

This is welcome news because it removes a major uncertainty for businesses that will be drawing up their plans for next year.

On the issue of freight charges, the government is pledging to extend the rent subsidy scheme to help companies that have invested in more warehousing facilities to order in bulk in a bid to spread freight costs.

But there are several other measures that provide direct and indirect stimulus to the economy.

The reduction in the part-time tax rate to 10% and the extension of the advantageous overtime rate to cover a wider income bracket are important measures to energise the labour market.

The in-work benefit for employees who work atypical hours will help retain Maltese workers in these jobs, while preserving competitiveness.

Similarly, the extension of the free childcare service to cover evenings and weekends will benefit employees who work on a shift basis.

The start of a process to decouple pensions from income derived from work will encourage pensioners to continue working.

At an enterprise level, the introduction of a tax incentive scheme for profits that are re-invested in eligible projects and the temporary measure that will allow capital allowances to be shifted between companies in the same group, will encourage companies to invest.

A disappointment is the lack of imagination in the tourism sector where no new funds have been committed despite government anticipating a pick-up in arrivals.

Budget 2022 provides a stimulus but it also looks ahead to ensure the fragile recovery is sustained and strengthened.