The Malta Fiscal Advisory Council (MFAC) has submitted its assessment report to the Minister for Finance, confirming that – based on the data available at the time – the government’s fiscal forecasts for 2026 as presented in the Annual Progress Report 2026 (APR26) are considered to lie within its endorsable range and consistent with the assumptions outlined in the official document.
The Council noted that Malta’s fiscal performance in 2025 turned out significantly stronger than previously anticipated.
The general government deficit declined to 2.2% of GDP, substantially below the 3.3% target contained in the Draft Budgetary Plan 2026 and below the 3% Maastricht reference value.
This improvement was primarily driven by stronger-than-expected revenue performance, particularly from current taxes on income and wealth.
Looking ahead, the MFIN projects the deficit to decline further to 1.6% of GDP in 2026, while the debt-to-GDP ratio is expected to fall from 46.4% to 45.8%.
The Council noted that Malta is expected to remain compliant with both the deficit and debt criteria established under the Maastricht Treaty and that, following the European Commission’s Spring 2026 forecasts, the conditions are in place for the abrogation of Malta’s Excessive Deficit Procedure (EDP).
The Council nevertheless said that compliance with the revised EU fiscal framework remains mixed.
While annual net expenditure growth is projected to remain within the limits established under Malta’s Medium-Term Fiscal-Structural Plan (MTFSP), cumulative deviations from the agreed expenditure path continue to exceed the threshold established under the control account mechanism.
This largely reflects substantial capital transfers, including those related to the establishment of the national airline and infrastructure projects recorded in 2024.
Consequently, Malta is projected to remain non-compliant with the cumulative expenditure requirement under the preventive arm of the revised fiscal framework.
The Council’s assessment of the 2026 fiscal forecasts points towards broadly balanced risks on the revenue side and upside risks on expenditure.
In particular, expenditure pressures related to intermediate consumption and social payments may exceed current projections, while risks to other expenditure items are viewed as broadly offsetting. As a result, the improvement in the fiscal deficit may prove more limited than currently envisaged by the MFIN.
The report also included a thematic analysis of Malta’s growing reliance on current taxes on income and wealth as a source of fiscal revenue.
The Council said that this category now accounts for more than 43% of total government revenue, significantly above the corresponding EU and euro area averages.
While this development has supported strong fiscal outcomes in recent years, it has also increased exposure to revenue concentration risks, particularly through the growing importance of corporate income taxation.
Council’s recommendations
The Council put forward three recommendations to the Ministry for Finance.
Recommendation 1: Strengthen the resilience and sustainability of Malta’s revenue base.
The Council recommended continued monitoring of the composition of fiscal revenues, particularly given the increasing reliance on current taxes on income and wealth. It recommended efforts to strengthen the resilience of public finances, including measures aimed at broadening the tax base where appropriate, whilst safeguarding competitiveness. The Council further considered that exceptional or windfall revenue gains should largely be directed towards productivity-enhancing investments and the strengthening of fiscal buffers, rather than financing permanent recurrent expenditure commitments.
Recommendation 2: Enact without further delay the necessary legislative amendments to transpose Directive (EU) 2024/1265 and align the Fiscal Responsibility Act with the revised EU economic governance framework.
The Council noted that Malta has not yet transposed Directive (EU) 2024/1265 despite the expiry of the transposition deadline on 31 December 2025. The Council reiterated the importance of updating the Fiscal Responsibility Act to ensure consistency between national legislation and Malta’s obligations under the revised EU fiscal framework. The Council recalled that it had submitted a position paper to the Ministry for Finance outlining its views on the required reforms and reiterates its availability to engage with all relevant stakeholders throughout this process.
Recommendation 3: Fiscal policy as a strategic enabler to address long-term structural economic challenges.
The MFAC emphasised the importance of using fiscal policy as a strategic enabler to raise productivity and strengthen Malta’s long-term competitiveness.
Prioritising productive public investment, particularly in infrastructure, education, skills, and innovation, can improve labour and capital productivity, support higher value-added economic activity, and raise the country’s growth potential in a sustainable manner.
The full report, entitled ‘Assessment of the Fiscal Forecasts Underlying the Annual Progress Report 2026’, is available on the website of the MFAC.
