This Budget does not address in any way the issue of productivity.

What does the Budget say about productivity?

Finance Minister Clyde Caruana said Malta should move towards an economy in which businesses invest more in technology, digitalisation and skills, rather than relying primarily on employing more people. He linked this to the need for greater productivity and higher-value economic activity (pp. 9 to 10).

The speech also presents several measures as supporting that direction. Their expected effects and the strength of the evidence behind them differ.

What measures could affect productivity?

The Budget proposes a 25% corporate tax rate, instead of 35%, for qualifying companies with turnover not exceeding €1 million, on profits retained or reinvested. The government says this would leave smaller companies with more resources to invest. The speech says that the 35% rate remains applicable when profits are distributed as dividends, and that further conditions will be established (pp. 34 to 35).

This is a general incentive that could support investment. It is not restricted to investments shown to improve productivity, and its effect depends on the final rules and how firms respond.

The speech also says Malta Enterprise will continue incentives for digitalisation, automation and higher-value investment (p. 55). These areas are relevant to productivity, although the passage does not clearly specify new schemes, funding or how support will change from existing arrangements.

Making foreign labour dearer pushes firms towards capital

The measure with the clearest link to productivity raises the cost of employing workers from outside the EU. From 2027, the fee for a new work permit rises by €200, from €600 to €800, and a new €400 infrastructure contribution is charged every year on new permits and on renewals (p. 29). The government expects the higher fees to raise about €80 million.

The economic reasoning follows a chain. When each additional third-country worker costs more, hiring more people becomes a less attractive way for a business to grow. Investing in machinery, automation and technology becomes relatively cheaper by comparison. When firms replace extra labour with capital, output per worker rises, and output per worker is what productivity measures.

The minister set out this reasoning himself. He said he wants an economy where businesses invest in technology and skills and "the first choice is not to employ more people", and where profits and competitiveness come "more and more from productivity" (p. 10). He closed the speech by linking the higher contributions on third-country workers to "more investment in technology, productivity and quality tourism" (p. 63).

How large the effect will be depends on how far the higher costs change hiring decisions, and on whether firms can automate or access the finance to invest.

Does this establish that the Budget will work?

No. An intended effect is not the same as an observed result. A proper assessment would need the final rules, details of implementation and take-up, evidence of investment that would not otherwise have occurred, and subsequent productivity outcomes.

Critics can reasonably argue that the Budget does not provide a sufficiently detailed transition strategy. The speech gives limited detail on how businesses will access support, whether existing incentives will be expanded, and how workers will be trained. In their initial reactions, the Malta Chamber said the Budget failed to outline how the government intends to address Malta's productivity problem, and the Malta Chamber of SMEs regretted the lack of concrete incentives to improve productivity. These are assessments of adequacy, rather than evidence that no relevant measures exist.

Evaluation

The claim says the Budget does not address productivity "in any way". That is contradicted by the speech's stated objectives and relevant measures. A narrower criticism, that the proposed response lacks detail or is insufficient, is a matter for further evaluation.