Issue link: https://maltatoday.uberflip.com/i/1547002
19 maltatoday | SUNDAY • 4 OCTOBER 2026 OPINION Afraid to live without it period of relative stability. Eco- nomic policy cannot operate independently of circumstanc- es. A rigid timetable for with- drawal would make little sense when the underlying interna- tional conditions can change so quickly. Yet the underlying structural concern remains valid. Perma- nent price suppression weakens the signal that scarcity is sup- posed to send through an econ- omy. Consumers have less in- centive to reduce consumption. Businesses have less incentive to improve energy efficiency. The economics of renewable investment change when con- ventional energy prices are in- sulated from international mar- kets. Government, rather than households and firms, increas- ingly carries the volatility. This creates an unusual par- adox. The policy that protects Malta from energy insecurity can, if maintained indefinitely without accompanying struc- tural reform, reduce the pres- sure to become less energy in- secure. That is the subsidy trap. The trap It is not that Malta made a mistake by introducing the subsidies. On the contrary, the available evidence increas- ingly suggests that they played an important role in protect- ing economic stability. The trap emerges when a success- ful crisis intervention gradu- ally becomes an expectation, and eventually an entitlement, without a credible pathway to- wards reducing the underlying exposure that made the inter- vention necessary. There is also a political econ- omy problem. Introducing a subsidy is relatively easy. Re- moving one is extraordinari- ly difficult. Once households and businesses organise their spending decisions around a particular fuel or electrici- ty price, the subsidised price becomes psychologically per- ceived as the normal price. The market price becomes the increase. The longer this con- tinues, the larger the economic and political adjustment asso- ciated with normalisation be- comes. This is why an abrupt with- drawal would make little sense. After years of insulating the economy, suddenly exposing households and businesses to the full international price would itself create precisely the shock the policy was designed to prevent. The government's own modelling illustrates the potential consequences. The choice is therefore not be- tween maintaining every subsi- dy indefinitely and eliminating everything tomorrow. There is a third path. Subsidy as a bridge Malta needs to treat the sub- sidy as a bridge between vul- nerability and resilience. The protection should create the political and economic space within which the country re- duces the exposure that neces- sitated it. That means accel- erating renewable generation, strengthening the electricity grid, expanding storage, im- proving energy efficiency and diversifying energy sources. Every euro that reduces Mal- ta's structural exposure to im- ported energy also reduces the potential fiscal cost of protect- ing the economy from the next international shock. Transport must form part of that conversation. Malta can- not indefinitely separate fuel policy from transport policy. If the strategic objective is to reduce congestion, encourage public transport, improve air quality and reduce dependence on private cars, permanently suppressing the price signal as- sociated with fuel pulls in the opposite direction. This does not mean motorists should suddenly face internation- al prices in full. It means that the long-term architecture of energy support must eventual- ly become consistent with the country's transport and envi- ronmental objectives. The same principle applies to businesses. Instead of think- ing only about subsidising the energy they consume, policy should increasingly help firms consume less of it, generate more of their own and invest in technologies that make them more resilient to future price shocks. Support can gradually migrate from subsidising con- sumption towards subsidising transition. The state would still be help- ing businesses, but it would increasingly be helping them escape the vulnerability rather than continuously compensat- ing them for it. This would also change the way we think about the €1.3 billion already spent. It should not simply be viewed as money lost. It purchased stability during one of the most disruptive pe- riods for global energy markets in decades. It protected dispos- able incomes, businesses and employment while reducing the domestic transmission of international inflation. Those are real economic returns. The next billion But the next billion should ideally buy something more than another period of stabili- ty. It should also help buy inde- pendence from the need for the billion after that. The broader issue is therefore one of fiscal resilience. Malta has benefited from strong eco- nomic growth and a debt ratio that remains comparatively manageable. That fiscal capac- ity has allowed government to respond aggressively to succes- sive shocks. But buffers mat- ter precisely because nobody knows what the next shock will be. Over a remarkably short period governments have dealt with a pandemic, wars, inflation and energy disruption. Climate events, demographic pressures, geopolitical fragmentation or another financial shock may define the next decade. Perma- nently committing significant fiscal capacity to suppressing one source of volatility inevita- bly reduces the room available to confront another. This is perhaps the most im- portant trade-off. The subsidy protects today's economy, but fiscal space protects tomor- row's. The success of the policy should therefore make the dis- cussion about its future easier rather than harder. There is no need to rewrite history or pretend that the intervention failed. It did what it was supposed to do. It shielded purchasing power, supported businesses, contained part of the inflation- ary shock and helped preserve economic stability. The ques- tion facing Malta now is how to preserve those achievements while gradually changing the mechanism through which re- silience is delivered. The debate should move away from the binary language of keeping or removing subsidies. The real objective should be to reduce Malta's need for them. That requires a long-term tran- sition in which protection re- mains where genuinely neces- sary, particularly for vulnerable households, while investment progressively attacks the struc- tural causes of our exposure. Any eventual normalisation should therefore be gradual, predictable and accompanied by alternatives. Otherwise, re- form simply transfers risk back from government to house- holds. There is an important differ- ence between protecting an economy from a crisis and pro- tecting it permanently from re- ality. Malta was right to do the former. It must be careful not to drift into the latter. The danger is therefore not that the subsidy failed. The danger is that it worked so well that we become afraid to live without it. The danger is therefore not that the subsidy failed. The danger is that it worked so well that we become afraid to live without it. Malta needs to treat the subsidy as a bridge between vulnerability and resilience. The protection should create the political and economic space within which the country reduces the exposure that necessitated it