Income tax reduction put off because of international developments

A reduction in income tax across the board was not possible at this time, because of international developments, but government remains committed to introduce an income tax cut when suitable, the finance minister said on Monday.

While announcing the government’s budget for 2023, Clyde Caruana said that the need to provide certainty and stability in order to protect families and businesses in the fairest and most sustainable way meant that the government had to put off a planned cut in income tax and focus on other priorities.

“The fiscal and economic measures we introduce today must make sense with the context of our economy,” he said. “Where we are introducing tax credits in this budget, we are doing so on particular activities, reflecting our principles in favour of families and businesses investing in sustainability and digitalisation.”

Caruana said that, in 2023, the Maltese economy is forecast to grow by 3.5 % in real terms, and 7.3 % in nominal terms,

Domestic demand is expected to contribute 2.5 percentage points, while net exports are expected to contribute only 0.9 percentage points to growth.

Private consumption is expected to grow more moderately by 4.0 %. And despite a projected increase in borrowing costs, investment is anticipated to grow by 5.9 % in 2023.

The external environment is expected to deteriorate significantly in 2023, as the shortage of energy supply in Europe is expected to lead to a long-term inflationary environment, leading to tighter financial conditions, which will dampen growth.

This slowdown in the global economy is anticipated to result in a contraction in exports, which are expected to grow at a slower rate of 2.5 %, supported by a continuation of the recovery in tourism and growth in exports of other services.

Imports are forecast to grow moderately at 2.0 %, in line with a slowdown in external economic activity, although supported by a recovery in investment.

Caruana said that government is projecting a 3.4 % increase in employment in 2023, while the unemployment level is expected to remain relatively low at 3.1 %.

Inflation is expected to ease at 3.7 % as increases in food and services prices are expected to persist, but at a more moderate rate.

The minister said that the need for government to intervene and support economic growth remains prevalent amid the uncertain international economic climate.