Finance minister says tax cuts not a viable solution to rising inflation

The finance minister has ruled out tax cuts sought by businesses to cushion the inflation blow.

Speaking in parliament during the opening of the debate on a bill to implement budget measures, Minister Clyde Caruana spoke about the Chamber of SMEs’ recent call to cut VAT to 15% and remove excise tax on personal care products.

He said government has been giving generous subsidies on power and fuel, also noting the EU budgetary rules requiring members states to reduce deficit to 1.5% of the GDP.

Caruana insisted he had nothing against businesses, saying that if that was the case, government would not be forking out millions in subsidies.

He said associations calling for a tax reduction need to think why profitability has dropped.

Acceding to the concessions sought by these associations would simply encourage additional operators to enter the market, inevitably leading to subsequent requests for further concessions.

The minister remarked that it had become a self-perpetuating cycle, as individuals were focusing internally rather than externally. He emphasized the need for Malta's prominent entrepreneurs to step up and guide the business community to adopt an outward perspective.

Highlighting the associations' concerns, he pointed out their challenges in recruiting and utilizing foreign labour. Stressing the significance of foreign workers to the economy, Caruana expressed that certain sectors would experience adverse effects in their absence.

He said continued expansion of businesses in labour-intensive activities, focused inward, would necessitate a growing workforce. Consequently, these workers would require accommodation and a well-established infrastructure, responsibilities falling on the government. With the escalating demand for such labour, costs would inevitably rise.

Thus, seeking concessions from the government, aimed at reducing its income, was not a viable solution. The government, in the midst of expanding infrastructure and related services, could ill-afford income reductions.

Caruana strongly encouraged businesses to explore opportunities beyond Malta's borders, emphasizing the need for growth with a reduced dependency on labor.

While acknowledging challenges faced by certain business sectors, the minister clarified that the solution did not lie in the government reducing VAT or import duties. He reiterated the government's commitment to avoiding tax increases, except for personal income tax, in line with electoral promises.