A 17 per cent surcharge on water and electricity consumption which will be reviewed every six months was announced in the budget speech yesterday.
The surcharge will not be applied to social cases and will be capped at Lm5,000 for hotels and factories. Prime Minister Lawrence Gonzi, who is also Minister of Finance, said the country will be "renewed" over a period of five years. "What is good today, we'll improve by 2010. What needs to be changed we'll also have to change by 2010," he said.
The budget for 2005 also features a three per cent excise duty on the use of mobile phones, a 5c increase on bus fares and on cigarette packets and a Lm10 tax on flight tickets from Malta applicable from next August.
Workers will no longer be given days off in lieu of public holidays falling on weekends, meaning an addition of four working days next year in what the government estimates should translate into a two per cent increase in productivity.
The price of kerosene is to be raised to match that of diesel. Eco taxes will be extended to a number of products including plastic bags, shotgun cartridges, chewing gum and some electronic products.
The budget also features incentives to help manufacturing industry and services including the creation of a new venture capital fund and the allocation of Lm1.8 million for assistance under the Business Promotion Act.
Tax incentives will be given for research work and those companies which introduce e-commerce systems.
Benefits available for SMEs employing up to six workers will be extended to companies employing up to 10 full timers.
VAT refunds will be given to conference organisers and penalties on overdue VAT by SMEs will be waived as long as the payments are made. There will be tax benefits for the film industry.
There are adjustments to the system of succession duty on property to favour the heirs, tax benefits for those carrying out restoration work and those who instal solar heating equipment, a one-year tax holiday for women returning to work after five years away, lower VAT on the purchase of musical instruments and tax cuts for parents of children with disabilities.
There will be a cost of living wage increase of Lm1.75c per week and improved children's allowances for those having more than three children. "This is a measure to encourage the people to have more children in order to keep the pension system sustainable," Parliamentary Secretary Tonio Fenech remarked in a briefing before the budget speech was presented.
Also published with the budget yesterday was a White Paper on pension reform where the government is proposing a gradual raising of the retirement age to 65 years and changing the system to one of three tiers made up of a government pension, a pension paid by employers and a privately funded pillar.
The budget shows that the economy is expected to show a real GDP growth of 0.6 per cent this year, slightly lower than projected. Economic growth is expected to reach 1.5 per cent next year.
Total recurrent revenue is projected to reach Lm900 million next year, from Lm824.1 million this year, while recurrent expenditure will climb to Lm839.1 million from Lm808.5 million this year. The government's revenue this year was Lm19 million lower than projected because of the performance of the economy.
Capital expenditure will rise to Lm137 million next year from Lm109.5 million this year (which was down from Lm126.6 million projected in the last budget).
The structural deficit will reach Lm93 million this year (4.9 per cent of GDP), a slightly improved performance from a projected figure of Lm95 million, and the figure is projected to decline further to Lm76.1 million by the end of next year. When calculated according to EU criteria (including companies whose revenue is dependent on the government) the deficit stands at 5.2 per cent of GDP this year and will decline to 3.7 per cent next year.
A breakdown of the projected revenue figures for next year shows that the government expects to earn Lm222.1 million from income tax (2004 - Lm209.8 million); Lm199.1 million from social security (Lm194 million); Lm71 million from customs and excise (Lm65.3 million); Lm96.5 million from licences, taxes and fines (Lm102.2 million) and Lm167.4 million from VAT (Lm140.5 million).
Non-tax revenue will rise to Lm143.8 million from Lm112.2 million this year with fees of office rising to Lm21.4 million from Lm6.4 million this year while foreign grants will increase to Lm74.6 million from Lm37.4 million this year.
The government is projecting revenue of Lm50 million from the sale of shares having made no revenue from this source this year despite an original projected revenue of Lm35 million. The privatisation exercise will include Tug Malta, Interprint and the government's shares in Malta International Airport and MDP.
Revenue from eco taxes is projected to reach Lm6.5 million.
The government said it intends taking various measures to further rein in its spending, including a restructuring of government entities. Some of them will be amalgamated, starting with the Restoration Centre, which will become part of Heritage Malta.
There will be tighter restrictions on staff recruitment and greater flexibility in the transfer of workers within the civil service. No new cars will be bought throughout the public service next year.
The unemployed will be required to attend training courses or be struck off the employment register. A Benefit Fraud Unit will seek to crack down on benefit fraud while efforts to curb VAT abuse will focus particularly on the construction industry. Sale of duty free diesel will stop but those entitled to duty free supplies would be able to claim refunds.