MALTA FEEDS MORE THAN IT EMPLOYS: THE RECKONING WILL BE BRUTAL
By Economist
The chart tells a clear story. In Germany, France, Italy and Malta, the number of people receiving public money already exceeds the number of people working in the private sector. In Malta, public recipients total 168,000 people, or 57 per cent. Private-sector workers total 128,000, or 43 per cent. These figures count only Maltese citizens. They deliberately exclude foreign workers, so that the picture reflects the financial position of the Maltese community itself.
This imbalance is not an accident. It is the result of what economists call the ratchet effect. During a crisis or period of heavy government intervention, public spending, employment and regulation expand. When the crisis ends, the expansion is never reversed in full. A permanently higher baseline remains. Each successive emergency therefore starts from a larger state, and the process repeats.
Maltese history supplies several clear examples. Income tax became a lasting feature of the fiscal system on 1 January 1949. The measure was introduced while the country was still recovering from the destruction of the Second World War. Once established, it was never withdrawn. Value Added Tax followed a similar path. It was first introduced in the late 1990’s to help meet the expected costs of closer European integration. Malta joined the European Union on 1 May 2004; the 18% tax remains. Additional payments and benefits for healthcare workers were introduced in 2020 at the height of the COVID-19 pandemic. Those measures are still in force years after the acute phase of the crisis has passed.
When a large share of the population becomes financially or structurally dependent on the state, reform grows extremely difficult as we saw in Greece. State employees, civil servants, pensioners and recipients of subsidies, grants or other transfer payments all have a direct interest in preserving or expanding public services. As soon as those who receive a net benefit from the state outnumber those who do not, electoral arithmetic works against reduction. The majority votes, rationally, for the continuation of the system that supports it. The result is political blockage.
The same dynamic is visible in Germany, France and Italy. For a time, the arrangement can continue. Investors continue to buy government debt at interest rates that governments can afford. Public services are maintained and new commitments are added. The difficulty arises when markets decide that the debt is no longer attractive at those rates. France has already reached that point this month. Belgium is widely expected to follow. Once borrowing costs rise sharply, governments face an abrupt choice between cuts and further borrowing that may no longer be available on reasonable terms.
Malta’s imbalance is already irreversible and fatal: more people now live off the state than sustain it, sealing the political system against any hope of reform as debt spirals. When markets finally abandon Maltese bonds, the collapse will be swift, brutal and total. The outcome will be public services dismantled, taxes driven to punishing levels, and living standards shattered.
As entire continents drowning in debt will clamp down on Malta’s token taxes for foreign corporations, the only short term tax solution left for the government’s finances would be to double and triple the foreign worker population in the private sector. Long term this will depress wages for the locals, incentivizing the Maltese to quit private work and jump on the government’s bandwagon, loading it with more debts. The chart already records a point of no return; every day of delay merely hastens the coming ruin.