Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Malta
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Malta, budget policy, economic policy, economic recovery, economic reform, employment policy, renewable energy, research policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 218 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Malta {SWD(2025) 218 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Malta 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(2) and Article 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

General considerations 

(1) 

Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the 
objectives  of  the  economic  governance  framework,  which  aims  at  promoting  sound 
and  sustainable  public  finances  and  sustainable  and  inclusive  growth  and  resilience 
through reforms and investments, and preventing excessive government deficits. The 
Regulation  stipulates  that  the  Council  and  the  Commission  conduct  multilateral 
surveillance in the context of the European Semester in accordance with the objectives 
and requirements set out in the TFEU. The European Semester includes, in particular, 
the  formulation,  and  the  surveillance  of  the  implementation  of  country-specific 
recommendations.  The  Regulation  also  promotes  national  ownership  of  fiscal  policy 
and  emphasises  its  medium-term  focus,  combined  with  more  effective  and  coherent 
enforcement. Each Member State must submit to  the Council and the Commission  a 
national  medium-term  fiscal-structural  plan,  containing  its  fiscal,  reform  and 
investment  commitments,  over  4  or  5  years,  depending  on  the  length  of the  national 
legislative  term.  The  net  expenditure2  path  in  these  plans  has  to  comply  with  the 

1 
OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
2 
Net  expenditure  as  defined  in  Article  2,  point  (2),  of  Regulation  (EU)  2024/1263:  ‘net  expenditure’ 
means  government  expenditure  net  of  (i)  interest  expenditure;  (ii)  discretionary  revenue  measures;  (iii) 
expenditure on programmes of the Union fully matched by revenue from Union funds; (iv) national expenditure 
on  co-financing  of  programmes  funded  by  the  Union;  (v)  cyclical  elements  of  unemployment  benefit 
expenditure; and (vi) one-offs and other temporary measures. 

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(2) 

(3) 

(4) 

Regulation’s  requirements,  including  the  requirements  to  put  or  keep  general 
government debt on a plausibly downward path by the end of the adjustment period, or 
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to 
bring  and/or  maintain  the  general  government  deficit  below  the  3%-of-GDP  Treaty 
reference value over the medium term. Where a Member State commits to a relevant 
set  of  reforms  and  investments  in  accordance  with  the  criteria  set  out  in  the 
Regulation, the adjustment period may be extended by up to three years. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility  (the  ‘RRF’),  entered  into  force  on 
19 February 2021.  The  RRF  provides  financial  support  to  Member  States  for 
implementing  reforms  and  investments,  delivering  a  fiscal  impulse  financed  by  the 
Union.  In  line  with  the  priorities  of  the  European  Semester  for  economic  policy 
coordination, the RRF fosters economic and social recovery while driving sustainable 
reforms and investments, in particular promoting the green and digital transitions and 
making  Member  States’  economies  more  resilient.  It  also  helps  strengthen  public 
finances  and  boost  growth  and  job  creation  in  the  medium  and  long  term,  improve 
territorial cohesion within the Union and support the continued implementation of the 
European Pillar of Social Rights. 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council4  (the 
‘REPowerEU  Regulation’),  which  was  adopted  on  27 February 2023,  aims  to  phase 
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy 
security  and  diversify  the  Union’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Malta  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  13  July  2021,  Malta  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to Article 19 of that Regulation, the Commission assessed the relevance, effectiveness, 
efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in  accordance  with  the 
assessment guidelines set out in Annex V. On 5 October 2021, the Council adopted its 
Implementing Decision approving the assessment of the recovery and resilience plan 
for  Malta5,  which  was  amended  under  Article  18(2)  on  14  July  2023  to  update  the 
maximum  financial  contribution  for  non-repayable  financial  support,  as  well  as  to 
include  the  REPowerEU  chapter6.  The  release  of  instalments  is  conditional  on  the 
adoption  of  a  decision  by  the  Commission,  in  accordance  with  Article  24(5),  stating 
that Malta has satisfactorily achieved the relevant milestones and targets set out in the 
the 
Council 

Implementing  Decision.  Satisfactory  achievement 

requires 

that 

(OJ  L 

the  Recovery 

and  Resilience  Facility 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
17,  ELI: 

3 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj). 
4 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27 February 2023 
amending  Regulation  (EU)  2021/241  as  regards  REPowerEU  chapters  in  recovery  and  resilience  plans  and 
amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive  2003/87/EC 
(OJ L 63, 28.2.2023, p. 1, ELI: http://data.europa. eu/eli/reg/2023/435/oj). 
5 
and resilience plan for Malta (ST 11941/2021 INIT; ST 11941/2021 ADD 1). 
6 
Council  Implementing  Decision  of  14  July  2023  amending  the  Implementing  Decision  of  5  October 
2021 on the approval of the assessment of the recovery and resilience plan for Malta (ST 11202/2023 INIT, ST 
11202/2023 ADD 1). 

Council Implementing Decision of 5 October 2021 on the approval of the assessment of the recovery 

18.2.2021, 

57, 

p. 

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(5) 

(6) 

(7) 

achievement  of  preceding  milestones  and  targets  for  the  same  reform  or  investment 
has not been reversed. 

On  21  January  2025,  the  Council,  upon  the  recommendation  of  the  Commission, 
adopted a recommendation endorsing the national medium-term fiscal-structural plan 
of  Malta7.  The  plan  was  submitted  in  accordance  with  Article 11  and  Article 36(1), 
point (a), of Regulation (EU) 2024/1263, covers the period from 2025 until 2028 and 
presents a fiscal adjustment spread over four years.  

On  26 November 2024,  the  Commission  adopted  an  opinion  on  the  2025  draft 
budgetary  plan  of  Malta.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  the  Commission  adopted  the  2025  Alert  Mechanism  Report,  in  which  it 
did  not  identify  Malta as  one  of  the  Member  States  for  which  an  in-depth  review 
would  be  needed.  The  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area and a proposal for the 2025 
Joint  Employment  Report,  which  analyses  the  implementation  of  the  Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights.  The  Council 
adopted  the  Recommendation  on  the  economic  policy  of  the  euro  area8  on  13  May 
2025 and the Joint Employment Report on 10 March 2025.  

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic framework that aims to boost the EU’s global competitiveness over the next 
five  years.  It  identifies  the  three  transformative  imperatives  of  sustainable  economic 
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To 
close  the  innovation  gap,  the  EU  aims  to  foster  industrial  innovation,  support  the 
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and 
promote the adoption of advanced technologies like artificial intelligence and quantum 
computing.  In  pursuit  of  a  greener  economy,  the  Commission  has  outlined  a 
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring 
that  the  shift  to  clean  energy  remains  cost-effective,  competitiveness-friendly, 
particularly  for  energy-intensive  sectors,  and  is  a  driver  for  growth.  To  reduce 
excessive dependencies and increase security, the Union is committed to strengthening 
global  trade  partnerships,  diversifying  supply  chains  and  securing  access  to  critical 
raw materials and clean energy sources. These priorities are underpinned by horizontal 
enablers, namely regulatory simplification, deepening of the single market, financing 
competitiveness and a Savings and Investments Union, promotion of skills and quality 
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned 
with  the  European  Semester,  ensuring  that  Member  States’  economic  policies  are 
consistent with the Commission’s strategic objectives, creating a unified approach to 
economic governance that fosters sustainable growth, innovation and resilience across 
the Union. 

(8) 

In  2025,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  implementation  of  the  RRF.  The  full  implementation  of  the 
recovery and resilience plans remains essential for delivering on the policy priorities 
under the European Semester, as the plans help effectively address all or a significant 
subset  of  challenges  identified  in  the  relevant  country-specific  recommendations 

Council  Recommendation  of  21  January  2025  endorsing  the  medium-term  fiscal-structural  plan  of 

7 
Malta, OJ C/2025/649, 10.2.2025. 
8 
C/2025/2782, 22.5.2025, ELI: http://data.europa.eu/eli/C/2025/2782/oj). 

Council  Recommendation  of  13  May  2025  on  the  economic  policy  of  the  euro  area  (OJ  C, 

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issued  in  recent  years.  These  country-specific  recommendations  remain  equally 
relevant  for  the  assessment  of  amended  recovery  and  resilience  plans  in  accordance 
with Article 21 of Regulation (EU) 2021/241.   

(9) 

The  2025  country-specific  recommendations  cover 
the  key  economic  policy 
challenges that are not sufficiently addressed by measures included in the recovery and 
resilience  plans,  taking  into  account  the  relevant  challenges  identified  in  the  2019-
2024 country-specific recommendations. 

in 

progress 

(10)  On  4  June  2025,  the  Commission  published  the  2025  country  report  for  Malta.  It 
assessed  Malta’s 
country-specific 
addressing 
recommendations  and  took  stock  of  Malta’s  implementation  of  the  recovery  and 
resilience plan. Based on this analysis, the country report identified the most pressing 
challenges  Malta  is  facing.  It  also  assessed  Malta’s  progress  in  implementing  the 
European  Pillar  of  Social  Rights  and  in  achieving  the  Union  headline  targets  on 
employment, skills and poverty reduction, as well as progress in achieving the United 
Nations Sustainable Development Goals.  

relevant 

the 

Assessment of the Annual Progress Report 

(11)  On 21 January 2025 the Council recommended the following maximum growth rates 
of net expenditure for Malta: 6.0% in 2025, 5.8% in 2026, 5.8% in 2027, and 6.1% in 
2028,  which  correspond  to  the  maximum  cumulative  growth  rates  calculated  by 
reference  to  2023  of  13.8%  in  2025,  20.4%  in  2026,  27.4%  in  2027,  and  35.1%  in 
2028. In 2025-2028, these maximum growth rates of net expenditure coincide with the 
in  accordance  with  Article  3(4)  of  Regulation  1467/97,  as 
corrective  path 
recommended by the Council on  21 January 2025  with  a view to bringing an end to 
the  situation  of  an  excessive  deficit9.  On  30  April  2025  Malta  submitted  its  Annual 
Progress  Report10, on  action taken in  response to  the Council recommendation of 21 
January  2025  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive  deficit 
and the implementation of reforms and investments responding to the main challenges 
identified  in  the  European  Semester  country-specific  recommendations.  The  Annual 
Progress  Report  also  reflects  Malta’s  biannual  reporting  on  the  progress  made  in 
achieving its recovery and resilience plan in accordance with Article 27 of Regulation 
(EU) 2021/241. 

(12)  Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  recommended  to 
activate the national  escape clause of the Stability and Growth Pact  in  a coordinated 
manner to support the EU efforts to achieve a rapid and significant increase in defence 
spending and this proposal was welcomed by the European Council of 6 March 2025.  
(13)  Based  on  data  validated  by  Eurostat11,  Malta’s  general  government  deficit  decreased 
from 4.7% of GDP in 2023 to 3.7% in 2024, while the general government debt fell 
from 47.9% of GDP at the end of 2023 to 47.4% at the end of 2024. According to the 
Commission’s  calculations,  these  developments  correspond  to  a  net  expenditure 
growth  rate of 13.9% in  2024.  In the 2025 Annual  Progress Report, Malta estimates 
the net expenditure growth in 2024 at 14.3%.  Based on the Commission’s estimates, 

Council  Recommendation  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive  deficit  in 

9 
Malta, C/2025/5036. 
10 
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en 
11 

Eurostat-Euro Indicators, 22.4.2025. 

The  2025  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-

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the fiscal stance12, which includes both nationally and EU financed expenditure, was 
expansionary, by 1.2% of GDP, in 2024. 

(14)  According to the Annual Progress Report, the macroeconomic scenario underpinning 
the budgetary projections by Malta expects real  GDP growth  at 4.0% in 2025, while 
HICP  inflation  is  projected  at  2.3%  in  2025.  The  Commission  Spring  2025  Forecast 
projects real GDP to grow by 4.1% in 2025 and 4.0% in 2026, and HICP inflation to 
stand at 2.2% in 2025 and 2.1% in 2026.  

(15) 

In the Annual Progress Report, the general government deficit is expected to decrease 
to  3.3%  of  GDP  in  2025,  while  the  general  government  debt-to-GDP  ratio  is  set  to 
increase  to  48.4%  by  the  end  of  2025.  These  developments  correspond  to  net 
expenditure growth of -0.1% in 2025. The Commission Spring 2025 Forecast projects 
a general government deficit of 3.2% of GDP in 2025. The decrease of the deficit in 
2025 mainly reflects a decrease in other capital expenditures due to the expiry of costs 
related  to  the  national  airline.  According  to  the  Commission’s  calculations,  these 
developments  correspond  to  net  expenditure  growth  of  0.8%  in  2025.  These  higher 
projections of net  expenditure growth than in  the Annual  Progress  Report are due to 
different projections for the national co-financing of EU programmes and other capital 
expenditure.  Based  on  the  Commission’s  estimates,  the  fiscal  stance,  which  includes 
both  nationally  and  EU  financed  expenditure,  is  projected  to  be  contractionary,  by 
1.9% of GDP, in 2025. The general government debt-to-GDP ratio is set to increase to 
47.6% by the end of 2025.  

(16)  General  government  expenditure  amounting  to  0.2%  of  GDP  is  expected  to  be 
financed  by  non-repayable  support  (“grants”)  from  the  Recovery  and  Resilience 
Facility  in  2025,  compared  to  0.3%  of  GDP  in  2024,  according  to  the  Commission 
Spring 2025 Forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms 
without a direct impact on the general government balance and debt of Malta.  

(17)  General government defence expenditure in Malta amounted to 0.5% of GDP in 2021, 
0.5%  of  GDP  in  2022  and  0.4%  of  GDP  in  202313.  According  to  the  Commission 
Spring  2025  Forecast,  expenditure  on  defence  is  projected  at  0.4%  of  GDP  in  both 
2024  and  2025.  This  corresponds  to  a  decrease  of  0.1  percentage  points  of  GDP 
compared to 2021.  

(18)  According  to  the  Commission  2025  Spring  Forecast,  net  expenditure  in  Malta  is 
projected to grow by 0.8% in 2025 and 14.9% cumulatively in 2024 and 2025. Based 
on the Commission 2025 Spring Forecast, the net expenditure growth of Malta in 2025 
is  projected  to  be  below  the  recommended  maximum  growth  rate  established  by  the 
corrective path. When considering 2024 and 2025 together, the cumulative growth rate 
of net expenditure is projected to be above the recommended maximum growth rate, 
corresponding  to  a  deviation14  of  0.2%  of  GDP.  The  projected  cumulative  deviation 

12 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the general government. It aims to assess the economic impulse stemming from fiscal policies, both those that 
are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is  measured  as  the 
difference  between  (i)  the  medium-term  potential  growth  and  (ii)  the  change  in  primary  expenditure  net  of 
discretionary revenue measures and including expenditure financed by non-repayable support (grants) from the 
Recovery and Resilience Facility and other Union funds. 
13 
14 
Regulation (EU) 2024/1263. 

Eurostat, government expenditure by classification of functions of government (COFOG).  
From  2026  these  figures  will  appear  in  the  control  account  that  is  established  in  Article  22  of  the 

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does  not  exceed  the  0.6%  of  GDP  threshold  for  the  cumulative  deviation,  beyond 
which  there  would  be  a  strong  presupposition  of  no  effective  action.  Therefore,  the 
excessive deficit procedure for Malta is held in abeyance. At the same time, Malta is 
invited to stand ready to take further measures to comply with the corrective path. A 
more complete assessment will be carried out when outturn data are available. 

(19)  Moreover,  the  Council  recommended  that  Malta  wind  down  the  emergency  energy 
support  measures  before  the  2024/2025  winter.  According  to  the  Commission  2025 
Spring Forecast, while the net budgetary cost15 of emergency energy support measures 
is estimated at 1.1% of GDP in 2024, it is projected at 1.0% in 2025. In particular, cuts 
in  indirect  taxes  on  energy  consumption  and  subsidies  to  energy  production  to 
compensate  for  the  price  increase  of  imported  electricity  remain  in  force.  The 
emergency  energy  support  measures  were  not  wound  down  before  the  2024/2025 
winter. This is not in line with what was recommended by the Council. 

(20)  The  Annual  Progress  Report  does  not  include  budgetary  projections  beyond  2025. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
Spring 2025 Forecast projects a general government deficit of 2.8% of GDP in 2026. 
The  decrease  of  the  general  government  balance  in  2026  mainly  reflects  a  further 
decrease  of  subsidies.  These  developments  correspond  to  net  expenditure  growth  of 
5.3% in 2026. Based on the Commission’s estimates, the fiscal stance, which includes 
both  nationally  and  EU  financed  expenditure,  is  projected  to  be  contractionary  by 
0.8% of GDP, in 2026. The general government debt-to-GDP ratio is projected by the 
Commission to decrease to 47.3% by the end of 2026.  

Key policy challenges 

(21)  Tackling aggressive tax planning remains key to improving the efficiency and fairness 
of  tax  systems.  In  view  of  the  spillover  effects  of  aggressive  tax  planning  strategies 
between  Member  States,  coordinated  action  to  complement  EU  legislation  through 
national policies by all Member States is paramount. Malta has taken steps to address 
aggressive tax planning practices by implementing previously agreed international and 
European initiatives, and by implementing reforms committed to in the recovery and 
resilience plan, such as the introduction of transfer pricing legislation, which became 
applicable  as  of  January  2024.  However,  until  Malta  applies  withholding  taxes  –  or 
equivalent defensive measures – on interest, dividends and royalty payments made by 
Malta-based companies to  zero and low-tax jurisdictions  (here  intended to  mean any 
jurisdiction with a statutory corporate income tax rate below 9%, the lowest statutory 
corporate income tax rate in the EU) to ensure that firms cannot shift their profits to 
non-EU  countries  untaxed,  the  risk  of  double  non-taxation  of  these  profits  remains 
high.  Furthermore,  the  treatment  of  resident  non-domiciled  companies  continues  to 
pose a risk of double non-taxation for both companies and individuals. 

(22) 

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 
2.2  of  Annex  V  to  that  Regulation,  the  recovery  and  resilience  plan  includes  an 
extensive set  of mutually reinforcing  reforms and investments  to  be implemented by 
2026.  These  are  expected  to  help  effectively  address  all  or  a  significant  subset  of 
challenges  identified  in  the  relevant  country-specific  recommendations.  Within  this 
tight timeframe, finalising the effective implementation of the recovery and resilience 
plan  including  the  REPowerEU  chapter,  is  essential  to  boost  Malta’s  long-term 

15 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 

The figure represents the level of the annual budgetary cost of those measures, including revenue and 

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competitiveness  through  the  green  and  digital  transitions,  while  ensuring  social 
fairness. The systematic involvement of local and regional authorities, social partners, 
civil society and other relevant stakeholders remains essential in order to ensure broad 
ownership for the successful implementation of the recovery and resilience plan. 

(23)  The implementation  of cohesion  policy programmes,  which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF), 
the European Social Fund Plus (ESF+) and the Cohesion Fund (CF), has accelerated in 
Malta. It  is  important  to continue efforts to  ensure the swift implementation  of these 
programmes,  while  maximising  their  impact  on  the  ground.  Malta  is  already  taking 
action under its cohesion policy programmes to boost competitiveness and growth. At 
the  same  time,  Malta  continues  to  face  challenges,  including  those  relating  to  skills 
shortages and mismatches, accelerating the energy transition, ensuring security of the 
water supply and sustainable management of water. In accordance with Article 18 of 
Regulation (EU) 2021/1060, Malta is required – as part of the mid-term review of the 
cohesion policy funds – to review each programme taking into account, among other 
things,  the  challenges  identified  in  the  2024  country-specific  recommendations.  The 
Commission  proposals  adopted on 1 April 202516 extend the deadline for submitting 
an assessment – for each programme – of the outcome of the mid-term review beyond 
31  March  2025.  It  also  provides  flexibilities  to  help  speed  up  programme 
implementation  and  incentives  for  Member  States  to  allocate  cohesion  policy 
resources  to  five  strategic  priority  areas  of  the  Union,  namely  competitiveness  in 
strategic technologies, defence, housing, water resilience and energy transition. 

(24)  The  Strategic  Technologies  for  Europe  Platform  (STEP)  provides  the  opportunity  to 
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP 
is channelled through 11 existing EU funds. Member States can also contribute to the 
InvestEU programme supporting investments in priority areas. Malta could use these 
initiatives  to  support  the  development  or  manufacturing  of  critical  technologies, 
including clean and resource-efficient technologies. 

(25)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Malta  faces  several  additional  challenges  related  to 
aggressive  tax  planning,  education  and  skills,  energy  and  decarbonisation,  road 
transport, and research and innovation.  

(26) 

Improving  innovation  outcomes  is  critical  for  Malta  to  maintain  its  productivity 
growth  and shift  to  a more resilient, knowledge-driven economy.  Malta’s total  R&D 
expenditure as a percentage of GDP is the second lowest in the EU (0.61% of GDP in 
2023  vs  EU  average  of  2.22%)  and  has  been  declining  over  the  last  decade.  This 
concerns  both  public  and  private  R&D  expenditure.  Public  investment  in  R&D  as  a 
percentage of GDP is lower than 10 years ago and well below the EU average (0.27% 
of  GDP  in  2023  vs  EU  average  of  0.72%).  The  picture  is  similar  for  private  R&D 
investment (0.34% of GDP vs EU average of 1.47%). The lack of investment impacts 
the excellence of the public research system and the results of innovation. Malta would 
benefit  from  promoting  both  public  and  private  R&D  investment,  particularly  by 
implementing targeted tax incentives. 

16 
Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) 
2021/1058 and (EU) 2021/1056 as regards specific measures to address strategic challenges in the context of the 
mid-term review - COM(2025) 123 final. 

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(27)  Malta continues to face challenges in achieving green economic growth, which means 
balancing  economic  development  with  environmental  sustainability.  The  country’s 
green transition is held back by the dominant role of fossil fuels in its energy system. 
Malta records sizeable fossil-fuel subsidies without a planned phase-out before 2030. 
In particular, fossil-fuel subsidies that address neither energy poverty in a targeted way 
nor  genuine  energy  security  concerns,  hinder  electrification  of  transport  and  are  not 
crucial  for  industrial  competitiveness  could  be  considered  a  phase-out  priority. In 
Malta, fossil-fuel subsidies  –  such as  the ongoing support to  Enemalta, subsidies  for 
petroleum  producers,  and  a  reduction  of  excise  duties  on  petrol  and  diesel  –  are 
economically inefficient and act as disincentives to the uptake of renewables and the 
decarbonisation of economic  activities. Moreover, they represent  a budgetary burden 
on  Malta’s  public  finances.  In  addition,  Malta’s  share  of  energy  derived  from 
renewable  sources  in  gross  final  energy  consumption  was  only  15%  in  2023,  one  of 
the  lowest  uptakes  of  renewable  energy  in  the  EU.  While  almost  all  installed 
renewable energy capacity is onshore solar, Malta has significant potential to expand 
its renewable energy mix through large-scale offshore wind and solar projects. Malta’s 
ability to deploy renewables and to improve its security of energy supply also depends 
on  good  progress  in  constructing  the  second  electricity  interconnector  with  Italy  and 
continuing  to  strengthen  and  modernise  its  domestic  electricity  grid,  including  by 
making it more flexible. Furthermore, while there are some support measures in place 
to  promote energy  efficiency, as well as investments  in  the renovation of public and 
private  sector  buildings  under  the  Maltese  recovery  and  resilience  plan,  the  final 
energy  consumption  in  residential  buildings  increased  by  13.5%  between  2018  and 
2022.  Malta  could  benefit  from  further  action  to  promote  efficiency  gains  in  the 
buildings sector, which would also help achieve the target for reduction of emissions 
under the Effort Sharing Regulation. 

(28)  Addressing traffic congestion and the high emissions from road transport are crucial to 
improving competitiveness, quality of life and supporting vulnerable segments of the 
population  in  Malta.  There  has  been  an  increased  uptake  of  scheduled  road  public 
transport  since  the  extension,  in  October  2022,  of  fare-free  scheduled  road  public 
transport to cover all Maltese residents, but a significant number of licensed passenger 
cars have also been added to Malta’s roads daily since then. The transport sector is the 
biggest  emitter  of  greenhouse  gases  emissions  in  Malta  falling  under  the  Effort 
Sharing  Regulation.  Between  2005  and  2022,  greenhouse  gas  emissions  from  road 
transport increased by 32%. Therefore, there is a need for measures that tackle traffic 
congestion by offering quality collective road transport services to decrease the use of 
private  passenger  cars  and  measures  that  discourage  private  passenger  car  use. 
Increasing  the  quality  and  efficiency  of  road  public  transportation,  for  example 
through  the  implementation  of  dedicated  bus  lanes,  and  increased  investments  in 
active  mobility  infrastructure,  including  improved  pedestrian  walkways,  would 
support  a  greater  shift  to  more  sustainable  modes  of  transport  and  ensure  people’s 
safety and better quality of life, including for those with impaired mobility.  

(29)  Shortages of skilled labour as well as skills mismatches are hampering future growth, 
competitiveness and the  green and digital transitions. The job vacancy rate is among 
the  highest  in  the  EU,  with,  among  other  things,  acute  shortages  in  information  and 
communication  technology  (ICT),  arts,  entertainment  and  recreation,  construction 
sectors,  parts  of  the  service  sector,  as  well  as  among  health  and  long-term  care 
professionals, and teachers. Additionally, 64% of firms believe the local labour force 
is not adequately prepared for the transition to carbon neutrality. Although improving 
and in line with the EU average, adult learning remains well below the 2030 national 

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target of 57.6%, with highly educated adults engaging in learning at much higher rates 
than  adults  with  lower  levels  of  education.  Enrolment  in  vocational  education  and 
training (VET) remains far below the EU average, and at upper-secondary level, only 
around  one  in  three  students  were  enrolled  in  science,  technology,  engineering  and 
mathematics  (STEM)  fields  in  2023,  below  the  EU  average.  The  share  of  tertiary 
students enrolled in STEM subjects is one of the lowest in the EU at 13.9%, with only 
5.1%  in  ICT,  and  even  lower  amongst  women.  Persistently  insufficient  basic  skills 
point to systemic shortcomings in the education system.  Due to  a  lack of adequately 
qualified  teaching  staff  and  ineffective  teaching  practices  and  curricula,  the  system 
insufficiently caters for all children, including pupils with a disability. Every third 15-
year-old  lacks  basic  skills  in  mathematics,  reading  and  science,  and  about  half  of 
pupils  in  the  8th  grade  (12-  to  13-year-olds)  lack  basic  digital  skills.  Despite 
improvements in recent years, about 1 in 10 students still leave education or training 
early, increasing the already large pool of low-skilled adults. Strengthening the quality 
and labour-market relevance of education and training, in particular by  strengthening 
students’  basic  skills  and  the  initial  and  continuous  training  of  teachers  as  well  as 
promoting enrolment in VET and in adult learning for low-skilled people, are key to 
improving  the  low  educational  outcomes  and  reducing  the  severe  shortage  and 
mismatch of skills, also in the area of STEM and the green transition. 

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2025,  the  Council  recommended  that  the  euro-area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the  2025 
the  euro  area.  For  Malta, 
Recommendation  on 
recommendations  (2),  (3),  (4)  and  (5)  help 
the  first  euro-area 
recommendation  on  competitiveness,  while  recommendations  (4)  and  (5)  help 
implement  the  second  euro-area  recommendation on resilience,  and  recommendation 
(1)  helps  implement  the  third  euro-area  recommendation  on  macroeconomic  and 
financial stability set out in the 2025 Recommendation. 

the  economic  policy  of 

implement 

(30) 

HEREBY RECOMMENDS that Malta take action in 2025 and 2026 to:  

1. 

2. 

3. 

Reinforce overall defence spending and readiness in line with the European Council 
conclusions  of  6  March  2025.  Adhere  to  the  maximum  growth  rates  of  net 
expenditure  recommended  by  the  Council  on  21  January  2025,  with  a  view  to 
bringing  an end to  the situation of an excessive  deficit. Wind  down the  emergency 
energy  support  measures.  To  address  remaining  aggressive  tax  planning  risks, 
introduce a withholding tax on outbound payments or equivalent defensive measures, 
and amend rules on non-domiciled companies. 

In  view  of  the  applicable  deadlines  for  the  timely  completion  of  reforms  and 
investments under Regulation (EU) 2021/241, ensure the effective implementation of 
the recovery and resilience plan, including the REPowerEU chapter.  Accelerate the 
implementation  of  cohesion  policy  programmes  (ERDF,  JTF,  ESF+,  CF),  building, 
where  appropriate,  on  the  opportunities  offered  by  the  mid-term  review.  Make 
optimal use of EU instruments, including the scope provided by the InvestEU and the 
Strategic Technologies for Europe Platform, to improve competitiveness. 

Promote investment in research and innovation, including by increasing public R&D 
investment and stimulating private R&D investment, for example through R&D tax 
incentives. 

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4. 

5. 

Accelerate  the  deployment  of  renewable  energy  by  promoting  large-scale  projects 
and  small-scale  investments  in  direct  energy  production  and  consumption.  Reduce 
energy demand through improved energy efficiency in buildings. Reduce emissions 
from road transport and address traffic congestion by promoting quality and efficient 
public  transport,  stepping  up  investments  in  active  mobility  infrastructure  and 
discouraging car usage. Phase out fossil fuel subsidies, including emergency energy 
support measures. 

Strengthen  the  quality  and  labour-market  relevance  of  education  and  training  to 
address  low  educational  outcomes  as  well  as  the  severe  shortage  and  mismatch  of 
skills, also in the area of science, technology, engineering and mathematics (STEM) 
and the green transition, in particular by fostering basic skills of students, the initial 
and  continuous  training  of  teachers  as  well  as  promoting  enrolment  in  vocational 
education  and  training,  and  in  adult  learning  for  the  low-skilled.  Strengthen  the 
inclusiveness of education and training. 

Done at Brussels, 

For the Council 
The President 

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