On 3 July 2026, the Council of the European Union published a recommendation outlining economic, social, employment, structural and budgetary policies for Malta. The document sets binding net expenditure growth limits for 2025-2028 and urges reforms in energy subsidies, tax compliance, pensions, R&D, justice, renewables, and transport.
The recommendation is part of the European Semester cycle. It follows the Council's Decision under Article 126(12) TFEU abrogating Malta's excessive deficit procedure, noting timely correction. The fiscal path requires Malta to respect maximum net expenditure growth rates: 6.0% in 2025, 5.8% in 2026, 5.8% in 2027, and 6.1% in 2028 (cumulative from 2023 base: 13.8%, 20.4%, 27.4%, 35.1%). Member States may request activation of the national escape clause until 2028 to support increased defence spending.
Malta must phase out non-temporary, untargeted energy subsidies, projected to cost 1.4% of GDP in 2026. To prevent profit shifting, the Council recommends applying withholding taxes on interest, dividends, and royalties to zero/low-tax jurisdictions. On pensions, Malta should strengthen supplementary (second/third pillar) pensions to improve retirement income adequacy. The country must boost public and private R&D investment (0.54% of GDP in 2024 vs EU 2.24%). Judicial delays must be addressed, including high caseloads and digitalisation gaps. Malta must accelerate renewable energy deployment (17.2% share in 2024) and reduce traffic congestion and private car dependency (58% never use public transport).
The recommendation impacts several stakeholders. EU taxpayers may benefit from improved fiscal discipline and reduced risk of future bailouts. Maltese consumers face higher energy costs as subsidies are phased out, but may gain from better pension adequacy and reduced congestion. Maltese businesses could see increased R&D incentives but also higher tax compliance costs. The Maltese government must balance fiscal consolidation with investment in renewables and justice digitalisation, potentially straining public finances in the short term.
The recommendation is non-binding but carries political weight. The Council will monitor Malta's progress through the European Semester. The European Commission is expected to assess implementation in its next country report, and the European Parliament may debate the recommendations in its Economic and Monetary Affairs Committee.