'No new taxes' in budget

The upcoming budget is not expected to impose any new taxes or additional fiscal burdens as the government sees a "good turnaround" in its finances, according to Parliamentary Secretary Tonio Fenech.

In an interview, Mr Fenech indicated that disgruntled taxpayers should not look at the upcoming budget with trepidation as government finances are re-routed back on track.

Among other encouraging statistics, Mr Fenech said that preliminary figures show that the government had slashed its deficit by Lm17 million between July 2004 and July 2005. The government is expected to save an additional Lm3 million in public service salaries when compared to the figure forecast in the last budget.

"We are not looking at increasing taxes and we have to counteract this by further reduction in government expenditure," Mr Fenech pledged.

Despite laying out the government's fiscal thoughts on paper in a pre-budget document, Mr Fenech assured The Times that the upcoming budget, to be presented early in November, has not been scripted yet.

The 2006-2010 pre-budget document, launched by Prime Minister Lawrence Gonzi late last month, gives a snapshot of the economy and unveils its targets and ambitions for various aspects of the economy.

Though a reduction in taxes seems unlikely for the time being - the government plans to slash this year's projected target deficit of Lm76 million to Lm52 million next year - there will be fiscal incentives to boost the property rental sector and the self-employed, among others, Mr Fenech said.

The government is bent on further reducing its share in the economy. The total number of people employed with the government is the lowest in 25 years, plunging below the 30,000 mark at the end of 2004 - redeployment has taken preference over the engagement of new staff.

Mr Fenech emphasised that the government wanted to reduce regulatory costs by making entities more efficient. In fact, a new policy applicable to government departments dictates that new proposals will be returned to sender should they require the introduction of new fees or bear new costs.

"We will be able to contain next year's budget if things continue going as they are - with better enforcement, better economic growth and reduction in expenditure. I hope that there will be certain sectors where we can reduce (taxation)."

There will be better news next year when the government introduces a shift from direct taxes to environment-related taxation, clearly indicating a revision in income tax bands.

Does the Malta Council for Economic and Social Development still hold a pivotal role, considering the government has already laid out its budgetary ideas?

While emphasising the need to widen the debate further, Mr Fenech believes the MCESD still has a major role to play in mapping out the economy. For example, the upcoming reforms in pension and stipends and the civil service collective agreement was facilitated thanks to discussion within the council, Mr Fenech said.

"But where the budget is concerned, the government has always been criticised for failing to take the lead and has to rely on a document prepared by MCESD which nobody is willing to take ownership of."

Turning to privatisation, in 2006 the government is proposing to initiate a process to divest the entire gas section from Enemalta Corporation.

Arguments for the privatisation of the energy generation and distribution functions of Enemalta include the potential to link the generation plant with an overseas one so as to gain additional capacity to cater for peak loads or breakdowns.

Mr Fenech said the government does not believe it should forever maintain a tight hold on the energy generation and distribution sectors. "We have to take into consideration the fact that we are a small country and we can't easily buy energy from elsewhere. But if we have the chance to link Malta to the international grid and we can create energy competition then we could go all the way and the government will divest itself of this function and assume the role of a regulator instead."

The Parliamentary Secretary said the government is currently being "sounded out" by international firms and this is why this proposal was laid out in the pre-budget document.

"It has to make commercial and competitive sense because we wouldn't like to see a monopoly in the hands of the private sector," Mr Fenech said.

On the other hand, concering Air Malta, Mr Fenech is optimistic that the restructuring programme will put the airline firmly back on its feet by latest 2010, by which time a public share offer will be made.

Likewise, the government intends to float its remaining shares in Malta International Airport, he said.