Solid growth based on tax collection programme

There has been general agreement from several social partners on Budget 2022’s effective social measures and other positive measures such as free public transport.

While Prime Minister Robert Abela skirted around the question as to whether this was a pre-election budget, in terms of budgetary aims the programme unveiled yesterday had the hallmarks of a courageous plan: a stronger social safety net, reduced tax burdens for those who chose to work more, including pensioners, greater incentives for electric car purchases and property buys in urban conservation areas, and a sustained public spending programme that seems to be underpinned by a more consistent tax collection effort.

While observers would say that the government’s short- to medium-term objectives of achieving a deficit rate of 5.6% looks overly optimistic within the next year, the government is actually forecasting the highest increase in revenue to originate from VAT receipts with estimates higher than the 2019 VAT income revenues. So the net revenue source assumes positivist growth in consumption and, crucially, a rigorous enforcement of VAT dues and collection of deferred VAT payments.

Quality of life measure are clear in this Budget with the proposal for double payment on working Sundays for contractor employees; 15% overtime tax for those earning up to €10,000; and 10% on part-time work, with extended opening hours for childhood centres. The arts also gets a much-needed aid with the reduction of income tax rate for artists to 7.5% and the introduction of an income0averaging mechanism over 3 years that addresses the irregular income patterns of artists. These two measures present an unprecedented legal and fiscal status for professional artists in Malta

Yet an increase in minimum wage, beyond the three-year gradual increase that had been introduced under Abela’s predecessor remains elusive. Caritas studies show that minimum wage must be substantially increased to be a decent living wage. While tax reductions can go a long way in encouraging gainful employment across the board, the problem Malta has with low national equivalised incomes placing close to 60,000 at the poverty line, must be addressed with a rise in national minimum wage when facing an inflationary society.

Opposition leader Bernard Grech was yesterday clear in his message criticising the Labour administration’s budget, armed with enough soundbites to keep followers happy ahead of what might well be a tough election campaign.

But certain throwaway statements risk betraying the PN’s inability to recognise good economic management, especially in difficult economic times such as those visited upon us by the COVID-19 pandemic. A case in point is the Opposition’s discounting of the increased public debt from one year to the other, which it dubbed a €5 billion “hole” over the next three years.

The PN might view public debt as suspicious, but in the aftermath of a pandemic, the need to create multiplief effects through growth needs a healthy government spending programme. Indeed public debt will be increasing substantially - €2 billion in 2021 (including foreign debt), €1.2 billion in 2022, €1.1bn in 2023, and €1 billion in 2024. Still, Malta’s debt as a percentage of GDP will be at 62.3% in 2024... far lower than the over-70% debt Malta was used to in the times when the island was admitted to the EU’s excessive deficit procedure.

At the same time, the more effective tax collection programme that the government is committed to, which has been lauded by employers organisations, will see tax revenues increase from €4.4 billion in 2021, to €6.2 billion in 2024 – an increase of almost 50% in three years. This will ensure that the “COVID deficit” will drop from 11% in 2021, to a manageable 2.9% in 2024.

Where is the problem in this? Would Bernard Grech as prime minister during a world crisis such as the COVID-19 pandemic refuse to increase public debt to finance the economic bounce-back? If the Opposition needs to show itself credible even during such a pre-electoral budget, it should pick on the Budget’s real shortcomings.