Issue link: https://maltatoday.uberflip.com/i/1547077
This would represent a profound change in political incentives be- cause government would grad- ually move from rewarding the announcement of activity towards rewarding the achievement of outcomes. The annual budget would cease to be primarily a cata- logue of what government intends to give and become a statement of what government intends to achieve. Deteriorating outcomes Education makes the case par- ticularly powerfully. The pre- budget document contains no shortage of initiatives: Curriculum reform, literacy interventions, dig- ital skills, AI literacy, inclusion and measures addressing early school leaving. Yet the latest PISA results are deeply concerning. Malta per- formed below the OECD average in mathematics, reading and sci- ence, and performance deterio- rated from 2022 in all three areas. Only 52% of Maltese 15-year-olds achieved at least baseline profi- ciency in reading, 56% in mathe- matics and 63% in science. The point is not to blame teach- ers, nor to conclude that every ed- ucational programme has failed. It is that a system can be ex- tremely busy while its outcomes deteriorate. More programmes, more technology and more ex- penditure do not automatically create more capability. Edu- cation policy therefore needs the same discipline Caruana is asking of businesses: What are the inputs producing? If Malta wants firms to substitute capital for labour, it must also produce workers and managers capable of deploying that capital produc- tively. Human capital and physi- cal capital are complements, not substitutes. Electoral politics The light rail discussion illus- trates the same principle from another direction. Malta des- perately needs to address trans- port, and a mass transit system deserves serious consideration. But Caruana's insistence that he wants to see the numbers before committing himself is precisely the discipline major public in- vestment requires. A project costing €2.8 billion cannot be assessed according to whether people like the idea, whether an attractive rendering can be produced or whether it makes a compelling electoral announce- ment. It needs rigorous apprais- al of demand, financing, con- struction risk, operating costs, alternatives and the economic value created. If the finance minister has not yet seen the underlying studies for what was presented as the largest infrastructure project in Malta's history, the issue goes beyond light rail. It raises a question about sequencing. Se- rious public policy should nor- mally move from problem to evidence, from evidence to op- tions, from options to appraisal and only then from appraisal to political commitment. Electoral politics has a tendency to re- verse that process. The same incentive logic applies to taxation. Carua- na deserves support for using technology and AI to identify discrepancies between declared income and observable wealth. A system capable of analysing multiple parameters across the taxpayer population and flag- ging someone declaring very low income while purchasing substantial assets is an exam- ple of technology being used to improve state capability rather than simply digitise an existing process. Before asking compli- ant taxpayers to shoulder ever greater burdens, government has an obligation to improve compliance with taxes already due. But if new taxes are eventu- ally introduced, their purpose should extend beyond filling fis- cal gaps. Good taxation chang- es incentives. It can discour- age activities generating social costs, encourage productive investment and make the over- all allocation of resources more efficient. The question should therefore not only be how much revenue a tax raises, but what behaviour it rewards or dis- courages. Energy subsidies dilemma Energy subsidies expose per- haps the hardest version of this dilemma. Here I would part company slightly with the fi- nance minister's categorical po- sition. He is right that remov- ing subsidies abruptly would transmit a substantial exter- nal energy shock directly into household bills, inflation, wage demands, business costs and economic sentiment. The subsi- dies have worked as a shock ab- sorber and their contribution to Malta's recent economic stabil- ity should not be underestimat- ed. But acknowledging that a subsidy works is different from declaring that it should remain uncapped indefinitely. Caruana himself accepts that some money is being wasted, while arguing that the oppor- tunity cost of withdrawal would be greater. That may be true to- day. The longer-term objective, however, should be to use the stability purchased by subsidies to reduce the vulnerability that makes them necessary. Other- wise an emergency intervention becomes another permanent feature of the political econo- my, defended because removing it becomes progressively more painful. This is ultimately the thread connecting labour, migration, education, subsidies, taxa- tion, infrastructure and public expenditure. Malta does not suffer from an absence of eco- nomic actors making rational decisions. It suffers from an incentive architecture that too often makes the easier short- term decision rational. That is why Caruana's candour should be welcomed. A finance min- ister publicly saying that some spending contains fat, that some subsidies contain waste, that businesses have relied ex- cessively on labour and that he wants to see the numbers before backing a major infrastructure project is opening the door to a more mature economic conver- sation. But the next step must be to move beyond identifying the symptoms and redesign the incentives producing them. The next transformation Malta's first great economic transformation succeeded be- cause the country became ex- ceptionally good at mobilising more resources. The next one requires us to become better at allocating them. That means capital instead of simply more labour, capability rather than simply more spending, out- comes rather than announce- ments, and evaluation rather than assumption. It also means accepting that government can- not ask the private sector to become more productive while exempting itself from the same question. Perhaps Budget 2027 should therefore be judged against a deceptively simple test. Not how much more government spends, how many new meas- ures it announces or even how much growth it forecasts, but whether it begins changing the incentives that determine how Malta's people, businesses and government behave. Clyde is right that the mod- el has to change. But models do not change because we ask people to behave differently. They change when behaving differently becomes the rational thing to do. And that is driven mainly by incentives. 19 maltatoday | SUNDAY • 11 OCTOBER 2026 OPINION the incentives are wrong Clyde is right that the model has to change. But models do not change because we ask people to behave differently. They change when behaving differently becomes the rational thing to do. And that is driven mainly by incentives