Employers fear VAT hike effects

Five employers' associations sharply criticised the increase in VAT, arguing that it will both erode disposable income and also raise their expenses as the cost of living increases that would be given as a result would not be linked to productivity.

"For us, it is a candle burning from both ends", they said.

The Malta Chamber of Commerce, the Federation of Industry, the Malta Employers Association, the Malta Hotels and Restaurants Association and the GRTU, Association of General Retailers and Traders held a joint press conference, taking a common stand, while declaring that their respective councils would analyse the budget in more detail at a later stage.

All of them complained that the budget did nothing to address competitiveness and said the government's predictions of a 3.5 per cent growth rate was too optimistic.

Chamber of Commerce president Reginald Fava said it was clear that some of the employers' suggestions had been taken on board but none of them had agreed with the increase in VAT.

Increases in VAT were normally compensated with decreases in other taxes and this did not happen, meaning that people's disposable incomes would decrease and, hence, spending power would also drop.

Inflationary wage pressures could be detrimental to the country's competitiveness, he added.

A higher VAT rate is also an incentive for tax evasion, GRTU director general Vince Farrugia said, adding there was a lot of pressure on self-employed from consumers not to pay VAT when it was 15 per cent and the temptation to avoid it when it was higher would now be greater.

Mr Farrugia said the budget was "short of economic logic". He said the targets to reduce the deficit by 2006 did not reflect economic realities.

MHRA president Winston Zahra said the budget gave a lot of importance to tourism and it was good that the government had not increased VAT on accommodation from five to eight per cent but the increase in VAT would hit tourism too.

"Most tourists come from the UK and Germany where VAT is lower than 18 per cent and that might have a negative impact on tourists' outlook on Malta," he said.

The employers' associations argued that the government should have reduced its expenditure by curbing abuse while the needy should receive all the assistance they required.

"Instead of controlling its expenditure, we have again seen the government's recurrent expenditure increasing by nine per cent. The government has again attempted to control the structural deficit by resorting to taxes. Our deficit is too big to be controlled by taxes. It is only economic growth that can help curb it. We need a bigger economy but nothing has been done to stimulate it," Mr Fava said.

He said he hoped that political parties would emulate the employer's example and start speaking with one voice where the good of the country was concerned. He showed his displeasure to the fact that trade unions, which had been invited, did not take part in the joint press conference on the budget.