This budget applied some reverse logic. There were two key election promises that could not be broken. One was the continuation of blanket energy subsidies and the other was the superbonus.

The former is modestly being estimated at €400 million for 2027 and the latter will cost close to €200 million. It is a lot of money to find when the economies we depend on most for tourism and exports are struggling, and when a good portion of corporate taxes comes from foreign-owned companies whose fortunes are also exposed to geopolitical risks.

So we had to find new ways of raising revenue. The increase in the daily tourist eco-contribution makes sense in principle. The €0.50 we had up to a year ago was ridiculous.

The initial increase to €1.50 last year was negligible in the grand scheme of things. It is being increased to €8 for tourist staying at hotels and €10 for those staying at Airbnbs, both chargeable for a maximum of 8 nights and applicable throughout the year.

My bet was on €7 per night irrespective of the type of accommodation, capped at 7 nights, and applicable for 7 months of the year, namely April to October, to encourage a shift of tourist numbers to the winter months. Considering that most tourists don't stay longer than 7 days and those who do cost us less per day in inconvenience, adopting a €7 x 7 nights x 7 months would have collected two-thirds of the revenue and promoted what we need to promote: longer stays and visits in the winter months. As presented in this budget, this measure should raise the equivalent of half of the €400 million of energy subsidies - let's say the portion that could have been saved if we were more targeted in our energy subsidy strategy. So we will be getting the wasteful part from tourists.

The other big headache was how to fund the superbonus. From the pre-budget outings of the Finance Minister, it is clear that this took some deliberation. The waters were tested for a potential postponement of the implementation of the superbonus, but this was too risky from a political perspective.

Going ahead with it in the current economic circumstances presented an opportunity to press the panic button on third country nationals by introducing a number of measures that make it harder for them to stay here: an increase of €250 in the annual permit renewal fee and a new fee of €400 per year as a contribution towards the infrastructure, no more free public transport - another €400 per year for those who opt for the €33 per month transport card, €83 per month licence fee for those who choose to drive a car - that's another €1000, no more free childcare - the cost of which runs into thousands, and no €1,000 superbonus.

The total cost impact on TCNs will run into several thousands and they will inevitably ask for higher wages or move elsewhere. Those who remain will be those whose employers will choose to keep even if at higher cost. That higher cost will be passed on in prices.

2027 will be an inflationary year

So of all numbers presented during the budget speech, the one which is least credible is the 2.7 per cent headline inflation for 2027.

When you consider the potential impact on wage costs of the TCN measures and the fact that we may be fully subsidising fuel from the port to the supermarket shelves 10Km away, but the prices at which we import food and everything else will be the same higher prices that are being seen in Europe and will reach us here a couple of consignments down the line, 2027 will be an inflationary year.

The superbonus, the additional reduction in parent taxes and the increase in pensions, will maintain the purchasing power of most households. But the pressure on wages will accelerate because people will not be able to procure much more than they do today, as they would be expecting given such handouts.

Quality of life issues

The quality of life issues that people have been complaining about, in addition to environmental degradation which is even more complex than these, can be grouped into four sets:

The first are those related to the inability of the infrastructure to cope with high tourist numbers and an ever-increasing number for foreign workers. For these issues, this budget provides a remedy. It's not the higher investment in infrastructure that we were hoping for, but it's a tangible attempt at reducing the numbers.

The second set of quality of life issues are those related to the cost of living. Here, energy subsidies, the superbonus, tax cuts for parents and pension increases, keep things under control. The fact that a substantial portion of these measures is being funded through the measures that are intended to address the first set of issues is a crafty way of dealing with the situation.

The third set of quality of life issues related to housing affordability. Nothing was said about this in the budget speech, but if tourist numbers in peak months are impacted, and especially if a significant portion of TCNs decide to move elsewhere, we could see a cooling down of the rental and buy-to-rental market that could curb property price increases for first-time buyers.

The fourth set of quality of life issues are those related to work-life balance. Here, the ball has been thrown into the employers' court, and maybe this is a good thing. The last thing we need is more populist measures on the employment front. Employers are the ones expected to find ways of doing more with less people, who increasingly want to work less hours and work from home.

The extent to which the measures related to TCNs will impact GDP depends greatly on how much employers are able to rationalise their workforce and sharpen their recruitment and retention. Recruitment costs have increased exponentially in recent years. Recruitment agencies charge between 15 per cent and 30 per cent of the gross salary of the vacancy being filled, depending on the role and the sector. Yet many recruits don't get past the two-year mark. The reasons are many but the end result is always the same: a lot of time, effort and money is spent on producing very little value - hence, low productivity.

Employers would do well to stop and think after this budget. Those who have micro businesses with a turnover of less than a million a year have been given a tax reduction from 35 per cent to 25 per cent, quite an incentive to stay micro.

SMEs that typically have a turnover exceeding a million and employ up to 250 people need to rethink their strategies. Put your energies where it really pays, where you have the know-how, there is a market, and you can deliver better than others. Stop trying to address reductions in turnover by spreading yourself wider and thinner. It will inflate your wage bill and shrink your bottom line further. Look at your processes, trim down and automate. Don't measure your success by how many people you employ, but by the revenue each employee generates. Pay well those who deliver and say goodbye to those who don't. Working hours and hybrid work arrangements are not the real issue: those discussions are easy to have with people who are committed to delivering. Always keep in mind that training can improve the skill set, but it will never change the attitude.

Productivity is for the private sector to sort out

This budget has been very clear: productivity is for the private sector to sort out. And private businesses must do so rigorously and with urgency to remain viable.

The framing of measures intended to push the private sector down this route as a rampage on TCNs is a shallow choice made by Government to appease those who harbour us-and-them sentiments and have little appreciation of how dependent our economy is on TCNs.

Some TCNs may be costing us more than the value of their output, but none of those complaining about this will rush to take their jobs, and some of those jobs are indispensable. It is not the fault of such workers that our investment in infrastructure over the past decade did not keep pace with our economic growth: we can blame it on deals gone wrong, Covid, the energy crisis, and expedient policy choices that have left us with little to invest in long-term solutions. In the absence of that, we need to be more sensible about the number of TCNs we bring in and how we employ them.

Increasing work permit application fees for employers is a legitimate way of doing this. Any contributions towards the use of the infrastructure should also be chargeable to employers upon permit issue. On the other hand, increasing renewal fees while working for the same employer sends the wrong message on retention. Higher renewal fees should only apply in case of change of employer where fees should be the same as for a new application to reduce the incentive for poaching. And withholding childcare facilities when we have the lowest birthrate in Europe... seriously, it's like cutting off your nose to spite your face.

Marisa Xuereb is an economist and a former President of the Malta Chamber of Commerce