Parents to get ‘historic’ tax cut as Malta tries to reverse shrinking native population

Maltese families are set to benefit from a major tax cut as the Government tries to shore up Europe’s lowest birthrate.

Concerns about a declining native population, and a shrinking local workforce, provide the backdrop to a bumper tax cut for families with children.

Last year, Finance Minister Clyde Caruana’s Budget speech announced a major revision to the tax bands, increasing the amount that is tax-exempt to provide an across-the-board tax cut for 290,000 taxpayers.
That measure cost the Government €140 million.

This year, Minister Caruana has announced a €160 million cut – but laser-focused on just 68,000 people with children.

This means that the average family with two or more children are set to see their tax bill go down by €257,000 over 25 years.

During his speech outlining the Government Budget for 2026, the Finance Minister Clyde Caruana announced the “historic” tax cut with a series of new computations.

The flagship measure is set to be introduced in a staggered fashion over three years.
The current ‘married’ and ‘parent’ income tax computations will now be further split into computations for those with one child and those with two or more children.

For persons on the married computation having one child will see a maximum saving of €2,175 per family. 2,4000 families are expected to be eligible for this tax cut. When combined with last year’s tax cut, they will see total savings of €65,000 over 23 years.

For persons on the parent computation having one child will see a maximum saving of €3,600 per family. 23,750 parents are expected to be eligible for this tax cut. When combined with last year’s tax cut, they will see total savings of €113,000 over 23 years.

Families on the married computation having two or more children will see a maximum saving of €6,000 per year. When combined with last year’s tax cut, they will see total savings of €150,000 over 25 years.

Finally, persons on the parent computation having two or more children will see a maximum saving of €10,000 per family. 29,300 parents are expected to be eligible for this tax cut. When combined with last year’s tax cut, they will see total savings of €257,000 over 23 years.

Other family measures
Families with a household income under €30,000 will also benefit from a €250 increase in the Children’s Allowance, for each child.

Meanwhile, the Minister also announced an increase in the bonus given to families having children, to €1000 for the first child, €1,500 for the second, and €2,000 for the third.

Parents going for adoption will also benefit from increased financial support. Those adopting from abroad will see the grant increase from €10,000 to €12,000, while those adopting locally will see their grant double from €1,000 to €2,000.

Finance Minsiter Caruana justifed the family-friendly bonanza with reference to a University of Malta study published earlier this year. The study, which investigated Malta’s falling birthrate, asked parents why they are not having more children.

The Minister noted that although many of the survey participants said the wanted another child, a full half of respondents said the financial pressure prevented them from doing so.

He characterised the move as “decisive action” that aims to reduce much of the financial concern for such parents.

“There is no bigger measure” that a Government can make, he said.

The package of measures is expected to be financed entirely with better rates of tax collection and increased economic activity.

Beyond fiscal measures, Minister Caruana also committed to working with social partners to increase maternity and paternal leave, and improve parental leave.

Another long-called-for measure is the extension of such leave to the self-employed, with the cost borne by the Government.

Neonatal care leave will also be introduced for workers whose infants need intensive care.