Employers back proposals

The Malta Employers' Association has given the thumbs up to the pre-budget document, saying its recommendations would provide people with incentives to work.

Among the document's proposals are the relaxation of income tax bands and the adjustment of social security payments for part-timers to reflect the pro rata hours of work. The latter should help to encourage a higher female participation rate, which is essential for stronger economic growth, the MEA said.

The association said it recognised that the expansionary nature of the document, though limited, was the result of the "rather austere character of previous budgets" that was necessary to contain the budget deficit. It sees the projected Lm8 million reduction in the tax bill, plus the slashing of the airport tax, as symbolic but nonetheless as measures that should leave an impact on aggregate demand.

"The introduction of the energy benefit will be a boon for low income earners who are the hardest hit by the fuel charges resulting from the increase in international oil prices," it added.

The MEA also noted that the cost of living increase for 2007 will be dampened as the 50c of the cost of living allowance for 2007 has already been included in the increase given for 2006. The association is also looking forward to discussing changes in company tax as a means to attract further investment to Malta and to serve as an incentive for entrepreneurship.

The document, it said, could serve as a basis for constructive discussion among the social partners to determine the best economic and social strategies.

Although the economy had performed better during 2005 and the first quarter of this year, some crucial sectors, most notably tourism, were in clear need of a "rethink" to reverse the current downturn.

Government employment, it noted, had been declining steadily although the public sector remained overmanned and a drain on public finances.

The association said it had long advocated a gradual reduction in the number of public service employees to establish a healthy ratio between employment in the public and private sectors as a means of relieving the fiscal deficit through a lower wage burden and redirecting these resources into a more productive private sector.

This was a trend that needed to be sustained through increased investment and exports. The increase of 15 per cent in investment expenditure during the first quarter, coupled with an increase in exports, were developments that needed to be sustained and supported by fiscal measures to further stimulate the economy.

Budget measures also needed to be supplemented with a resolve to implement reforms in critical areas, such as the ports, in order to increase competitiveness and employment.

These reforms would in themselves reduce inflationary pressures on the economy which may threaten Malta's adoption of the euro, the MEA said.