Clyde Caruana’s election spending spree triggers fiscal warning

The Labour government burned through approximately 86% of its planned annual expenditure increase during the first three months of 2026, according to a warning issued by the Malta Fiscal Advisory Council.

Government expenditure increased by 14.5% during the first quarter, reaching €2.34 billion.

Of the €345.5 million increase forecast by the finance ministry for the whole of 2026, €296.3 million had already materialised by the end of March.

The Fiscal Council warned that expenditure growth would consequently have to slow to just 0.7% over the remaining nine months for the government to remain within its annual forecast.

Yet figures for the second quarter show little sign of that slowdown.

Cash expenditure increased by 17.5% during the first half of the year. Growth remained at 17% during the second quarter after reaching 18.1% in the first, indicating that the spending pressures had not subsided.

The increases were spread across all the main spending categories.

Intermediate consumption rose by 22.4%, compensation paid to government employees increased by 9.2%, and social benefits and transfers climbed by 12.2%. Government investment increased by 35.1%, while other expenditure rose by 36.6%.

Operational and maintenance expenditure surged by 48.9%, although the council said the figure was partly influenced by a one-off transaction. By June, the category had already consumed 64.3% of its annual allocation.

Personal emoluments increased by 11.7% because of collective agreements, higher wages and further recruitment.

The Fiscal Council said the risk to Malta’s 2026 fiscal balance was now tilted towards a larger deficit than the government forecast.

If spending continues at its present pace, revenue would have to “significantly overperform” to compensate.

The warning comes despite a resilient economy.

Malta’s real GDP increased by 3.9% during the first quarter, slightly above the government’s 3.7% annual projection. Tourism, employment and household consumption also remained strong.

Revenue figures improved during the second quarter, but the council said the government’s ability to meet its deficit target increasingly depended on reining in expenditure.

It urged Caruana’s ministry to exercise greater control over non-productive expenditure and warned that new initiatives should be financed through existing allocations or offsetting measures.

The council also cautioned that Malta’s exit from the EU’s Excessive Deficit Procedure should not be interpreted as providing room for permanent spending increases.

Favourable economic conditions, it said, should instead be used to rebuild Malta’s fiscal buffers and prepare for future shocks.