Issue link: https://maltatoday.uberflip.com/i/1501789
NEWS 7 maltatoday | WEDNESDAY • 21 JUNE 2023 CONTINUED FROM PAGE 1 The share of subsidies is ex- pected to decline gradually to 6.6% of total expenditure by 2025. The analysis shows that gov- ernment spending on subsidies has undergone major changes in recent years. The proportion of subsidies in relation to GDP increased from 1.4% in 2019 to a significant 5% in 2022 and will remain higher than the lev- els observed in 2019 until ap- proximately 2025. A shield in times of adversity The composition of subsidies has experienced a significant transformation, primarily due to the impact of the COVID-19 pandemic and the conflict in Ukraine. In the pre-pandemic era, sub- sidies were primarily allocated to Public Service Obligation contracts, which supported es- sential services like the Gozo ferry, the bus service, and pub- lic broadcasting. Additionally, subsidies were provided to the film industry and for ensuring spare electricity capacity. Some subsidies were directed to- wards vulnerable households, such as the eco-reduction ben- efit for offsetting residential utility tariffs and feed-in tariffs for electricity generated by so- lar photovoltaic systems. However, the pandemic and inflationary pressures prompt- ed the introduction of new sup- port measures between 2020 and 2022. These measures were meant to mitigate the adverse ef- fects of COVID-19 and high in- flation on the Maltese economy. Notable COVID-19 support measures included the Wage Supplement Scheme, house- hold vouchers, and subsidized interest payments on govern- ment-guaranteed debt. To counter inflation, subsidies were passed on to public sector entities to maintain fixed retail prices of electricity, fuel, and household gas. But additional support meas- ures implemented in 2022 were related to the restructuring of Air Malta, including an early retirement scheme for employ- ees. Overall, a significant portion of subsidies between 2020 and 2022, averaging around 73% of the total, was allocated to COVID-19 and energy price shock-related support meas- ures. In 2023, approximately 60% of the projected subsidy spending is expected to be at- tributed to fuel cost support measures. While the outlays on these support measures are anticipat- ed to decrease in the following years, they are still projected to account for approximately 38% of subsidies in 2024 and around 32% in 2025. From Covid to inflation COVID-related measures constituted about 69% of the total subsidies each year in 2020 and 2021. However, this dropped to 17% in 2022 as these measures were phased out. In contrast, there was a significant increase in subsidies related to inflation mitigation measures in 2022, which made up approximately 39% of the total. The report forecasts that these measures will comprise around 49% of the total subsi- dies in 2023. As energy prices are expected to decline, the percentage of support meas- ures within total subsidies is estimated to decline to around 38% in 2024 and approximately 32% in 2025. In 2022, support provided to Air Malta accounted for ap- proximately 17% of the total subsidies. The latest Stability Programme outlines the im- plementation of a second ear- ly retirement scheme in 2023, which is projected to represent around 10% of the total subsi- dies, according to the Bank's forecasts. Subsidies set to peak at 12.3% of government expenditure in 2023 • Central Bank review shows that 49% of public subsidies in 2023 will target energy sector • Subsidies for Air Malta accounted for 17% of subsidies in 2022 Composition of subsidies (% of total) The proportion of subsidies in relation to GDP increased from 1.4% in 2019 to a significant 5% in 2022 and will remain higher than the levels observed in 2019 until approximately 2025