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Launching the much awaited pre-budget document for 2007, Prime Minister Lawrence Gonzi yesterday steered clear from elaborating on how government will balance the expected shortfall in revenue, should his ambitious tax review be adopted.
Speaking at Castille, the Prime Minister dwelt repeatedly on the words “extreme prudence”, when outlining his government’s plans to inject confidence in the economy by proposing a package of proposals to alleviate the tax burden.
Given the current economic conditions and government’s ability to meet its fiscal targets, the pre-budget document projects an Lm8 million window, which government can use to finance the measures. However, the document clearly states that “beyond that (Lm8 million), would have to be made good by other measures, such as further expenditure reductions or by shifting the burden of taxation through additional revenue sources that might be identified during the consultation process.”
Government is proposing the containment of all expenditure “except that earmarked for pension benefits within this year’s parameters” but stops short of identifying any other income sources that would have to make up for any additional shortfall above Lm8 million.
Budget projections based on economic growth that stood at 2.4% in real terms for 2005, 3.1% for the first quarter of 2006, and a deficit that this year will be finally brought down to Lm55 million - therefore under the 3% threshold of GDP - are the main factors that are leading government to propose measures intended to “reward” sacrifices incurred by taxpayers.
Government’s manoeuvring for 2007 will be thoroughly scrutinised by the EU Commission in respect of the convergence plan towards the adoption of the Euro by 2008. By beginning of July 2007, the Commission and the European Central Bank will be delivering their final verdict on Malta’s eligibility to join the single currency.
The pre-budget document proposes the reform of the present system of income tax, such as widening the bracket of zero income tax payers. Another reform is expected to see the removal of the minimum National Insurance threshold to be worked on a pro-rata basis. Other measures include a supplementary benefit for pensioners and low income families to compensate for the hefty surcharge incurred on energy.
Anticipating that 2007 will be a “crucial year” that is expected to boost the country’s economy, Lawrence Gonzi expressed himself quite cautious on prospecting the total cost of the initiatives, as the economy must generate the right conditions to manoeuvre such incentives without disrupting the state coffers.
Flanked by Parliamentary Secretary Tonio Fenech, the Prime Minister stood his ground on what he defined as the “accountability of shouldering responsible decisions in the national interest”. He stressed that this is not a pre-election pre-budget document.
“Far from it, I am not a pragmatic politician who decides in a swing-like manner to please the people, I shoulder decisions. I am accountable to take them in the national interest. Here we are paving the way to secure our future,” he said.
The hurdles before government are big, starting from the dependability on oil importation for the generation of energy, thus increasing inflation, to the admission of the unattained target of increasing tourist arrivals by 50,000 this year.
The Prime Minister encouraged the public and social partners to actively involve themselves in the forthcoming two month debate towards the budget for 2007, as the measures proposed are strategic and will consolidate the economy.
For government, the budget for 2007 must focus on strengthening a more inclusive and participatory society, the implementation of a socio-economic strategy for Gozo, incentivising work and growth through the review of the fiscal regime, sustaining industry and tourism, and incentivising growth through research and innovation.
Additional reporting by Karl Stagno Navarra
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