“Digital Focus” is the Malta Budget code for raising productivity.

One of the main aspects the government had to address in Malta’s 2026 Budget was the economy’s productivity. Whilst Malta’s productivity remains well below that of its European counterparts, data suggests we are catching up, albeit slowly. The next phase of Malta’s economic growth should therefore hinge more on doing more with less, mainly by lifting the return on labour hours.

In this sense, Caruana’s budget speech for 2026 reads like a checklist from a consultancy firm on modernisation and digitalization. Upskilling, start-ups, research, tax levers, digital identity, even a promise of “AI for All”, all promises that shed light on the digital direction the government believes Malta should take.

The emphasis on productivity is not only important to increase Malta’s economic output but also to alleviate the concerns of the past decade's growth, mainly overpopulation and the externalities that come with it. A reversal of immigration patterns will always be unlikely but a slowdown is a target government should aim for as industries become less human resource hungry.

Government has set aside a headline €100 million to accelerate digital adoption across firms. The pot, which is going to run through Malta Enterprise, the Malta Digital Innovation Authority, and EU funds, covers everything from AI and cybersecurity to robotics, AR/VR, Internet of things and blockchain. For a country of Malta’s size, this is not pocket change and amasses around 0.6% of GDP on its own.

The budget leans also on tax benefits to shift behaviour. Firms investing in digitalisation or automation benefit from write-offs. Meanwhile R&D spending earns a 175% super-deduction, while a new capital-investment credit covers 60% of eligible equipment and software costs over four years. The popular Micro Invest scheme now includes digital solutions, with higher ceilings and an extra Gozo bonus.

At the skills front, the Budget doubles down on STEM education and expands sector academies in aviation maintenance and interactive media. These investment mean students will be pushed towards higher value added sectors in which, at present, human resources is a bottleneck for growth. Another scheme, albeit a more cosmetic feature rather than a push for innovation, is the “AI for All” incentive were every citizen can take a free course, earn certification, attend practical sessions, and receive a complimentary subscription to an AI tool like ChatGPT or Gemini. If delivered at scale, this would make Malta one of the first EU states to treat AI as a public utility rather than a luxury skill.

To lower technical barriers, the European Digital Innovation Hub has opened access to the country’s high-performance computer, letting start-ups and SMEs experiment with AI models and cloud tools for free. Previously, such capacity required a costly trip abroad.

The architecture is sensible, skills and tools all built together. The risk lies in execution. Productivity gains, however, do not emerge from software licenses alone. They depend on management quality and workflow redesign, what is the invisible work of changing how firms operate. Without that, grants may subsidise software that gathers digital dust. Many Maltese SMEs still lack the data infrastructure or middle-management capacity required to reengineer processes or measure efficiency gains. True productivity growth requires a deeper layer of organisational reform, one where technology is the enabler, not the endpoint.

The missing ingredient is focus. The €100 million digitalisation fund touches everything from AI to IoT, AR/VR, and blockchain. This spectrum is so wide it risks diluting impact. Malta can’t afford to be a generalist in all, expert in none.  The “focus” element also applies to sector prioritization. Malta’s incentives are largely horizontal when they should be steered toward a few niches where the country can build comparative advantage and prove real productivity gains. Government could run thematic calls in finance rails, aviation services, gaming compliance and port logistics, then release the final tranche of support only when firms with verified outcomes, for example hours saved per process, lower energy per unit or fewer staff per output. Tying money to measured reductions in labour intensity would curb the economy’s dependence on constant inflows of workers, and with it the housing, congestion and wage-compression pressures that follow.