Editorial

The reaction to the measures announced in the Budget has been generally negative. While there is consensus that the deficit problem must be tackled and brought under control - thereby facilitating Malta's adopting the euro in a few years' time, among other things - there is widespread disagreement with the way Government has gone about trying to do this.

This is borne out by the findings of the latest survey carried out for The Sunday Times by Professor Mario Vassallo, being published in this issue, which reveal not only that 58 per cent consider the 2004 Budget to have affected them badly or very badly, but also that 71.3 per cent do not believe that it will effectively tackle the deficit problem.

The Prime Minister and Finance Minister John Dalli do have a point, however, when they argue that no serious alternatives have been suggested, by the Opposition, to the revenue-raising and cost-cutting measures proposed in the Budget (particularly the three per cent hike in the VAT rate).

Surely, for example, no-one can quarrel with the increase in excise duty on cigarettes (raising the cost of cigarettes is one way of making some people stop smoking). Similarly no-one can quarrel with clamping down on widespread evasion of stamp duty in sales of property, but there is understandable opposition to capital gains tax on the sale of inherited property.

Again, though running costs and investment in homes for the elderly (surely a growth industry) continue to soar, Government could not help being accused of meanness when raising the portion of pensions paid by the elderly in Government-run homes to 80 per cent, from 60 per cent, when this had been the target of the (then) Nationalist Opposition's criticism during a Labour administration. The Budget has also been criticised for failing to revitalise the economy, although if it manages to cut the deficit this would, in itself, act as a stimulant to growth.

But perhaps the measure which has been most strongly criticised is the VAT increase, even if Mr Dalli had to take drastic action to rein in the ballooning expenditure on health. The three per cent increase will be devoted to health, and an overwhelming majority of the respondents (85.3 per cent) in our survey agreed with this.

However, many are highly sceptical that the proposed one-off allowance of Lm39 will be enough to mitigate the expected inflationary effect of the higher VAT rate.

Our survey shows that while a majority (52.7 per cent) said they preferred a VAT increase to an increase in income tax, three-quarters (75 per cent) were convinced that VAT evasion would increase when the new 18 per cent rate comes into effect on January 1.

Furthermore, 54.7 per cent said they knew of persons who evaded VAT. Respondents, asked to identify those who evaded tax, had no hesitation in pointing at various categories of self-employed persons, notably professionals, and including shopowners (presumably those who fail to give VAT receipts, despite the obligatory fiscal cash register), and tradesmen (many of them part-timers).

These categories, it must also be said, are the ones most frequently identified with income tax evasion. Despite Government's best efforts, including the monthly lottery for VAT receipts, the perception that tax evasion is rampant is quite strong. Presumably, a higher rate of VAT will fuel even more evasion.

It must be admitted that Government has made enormous progress in tax collection, which has become much more efficient, but there is equally no denying that evasion continues. For example, it is known that not all restaurants give VAT receipts. One restaurateur who complies fully with the law has suggested that notices be put up next to restaurant cash registers reminding patrons to take their VAT receipt with them, and even that this be made compulsory.

Similarly when it comes to tradesmen, who quote one price if no VAT receipt is given, and a much higher price if the client insists on the VAT receipt. When the difference is a couple of hundred liri on every job, it takes a very conscientious citizen indeed to insist on a VAT receipt.

The priority here is greater emphasis on enforcement and a realisation by consumers generally that it is in their interest, after all, to insist on a VAT receipt. The Finance Ministry should also be on the lookout for unjustified price hikes come next month - again, consumers should be on their guard. After all, they can choose where to take their custom: this is one of the benefits of competition.