The Prime Minister in his address said: We have achieved our objectives. We are placing our country's finances on solid ground. Our economy has resumed a healthy rhythm. We are creating thousands of new jobs. We have sustained major developments in education, health, and in the social sphere.
All this has been achieved by the Maltese and Gozitan population through our determined work over the past years. This evening, on behalf of my government, I would like to convey a message of gratitude, determination, and clear direction. The budget has a single and unequivocal aim: securing our future and that of our children.
Over the past weeks we have made a genuine effort to listen to, discuss and scrutinise everyone's wishes, ideas and aspirations.
We have now prepared this budget. Our aim is, while building on previous budgets, to continue using our best endeavours to achieve the ambitious goals we have set for our country. We want to:
• invest as much as possible in education for our children and for each and every one of us, as well as in research and innovation;
• achieve a quality leap in health services through the opening of Mater Dei Hospital;
• improve our environment in its entirety;
• continue strengthening our country's finances and economy;
• adjust our taxes and introduce other measures to incentivise work, while allowing everyone to benefit from what our country has managed to achieve;
• prepare our country for adoption of the euro, another important step in the economic and social development of our country, and make best use of EU Funds that we have managed to obtain for Malta and Gozo.
This is a budget made by the people for the people.
The human being, or rather each and every one of us, is the focal point of our work. We favour no particular ideology or class. The human being constitutes the alpha and omega of all our efforts. The economy, trade, education, laws, fiscal measures, technology, the euro, the European Union, to mention but a few, are not ends within themselves, but merely tools for the service of our people.
The yardstick by which politicians' achievements are measured is the extent to which we use these tools wisely and with commitment in order to improve the lives of all Maltese and Gozitan.
In using these tools, we must acknowledge the fact that although we all possess the same dignity, our needs differ. While safeguarding the dignity of everyone, we must afford preferential treatment to those who are more vulnerable and who therefore require more attention in order to live in dignity. Man manifests his worth by showing solidarity towards others. Solidarity is not a slogan but a way of life. Without interacting with others we impoverish ourselves, and consequently economic and social progress must work in a complementary manner.
Although each and every person has needs which must be seen to without undue delay, we cannot allow such short term concerns to detract us from long term needs, both for us and our children.
In order to secure a healthy present we must secure our long-term future, through a government which embraces a serious and credible policy which is not vitiated by the common temptation to pander to instant gratification.
In building a society which fully respects man's dignity and which secures our future, a key role must be played by the social partners and members of civil society, including the ever-increasing number of voluntary organisations, professional bodies, and unions.
We acknowledge this role, encourage it and expect it. Government, politics, administrative bureaucracy, and the services we provide cannot work in isolation, and can never aspire to give to society what families, communities, local councils and voluntary initiatives can give. These are all important partners in the building and strengthening of Maltese society.
In order to give a valuable service conducive towards securing our future, we must take into account the wishes, needs and aspirations of all Maltese and Gozitan citizens. Finally however, the government is also responsible, after listening, consulting, and discussing, to give a clear direction.
This budget gives the clear direction necessary for the attainment of the aforementioned goals, with the participation of all parties.
The preparation of this budget was based on a process of consultation and dialogue. Since January, we set in motion consultation meetings aimed towards optimising use of EU funds to the tune of 805 million euro. Towards the beginning of August, we published the pre-budget document. For the second year running, the government pre-announced its thoughts about the budget. We entered into discussions with employers' associations and unions. We sent the main points to all households. We received feedback and proposals from thousands of people. We also held specific meetings in order to continue listening to ideas and discussing.
I am pleased to confirm that many ideas and proposals emerged from this process. These were very helpful for us to understand better the aspirations of our people. We reflected deeply on the feedback received, contemplated possible courses of action, an analysed the impact thereof.
We wish to be in a position where we can accede to everyone's wishes. Nonetheless, we feel that it would be grossly irresponsible should we in any way jeopardise our country's financial consolidation, that is, jeopardise what the Maltese population has managed to achieve with much toil and effort. This is therefore a cautious budget which does not attempt to go beyond our present means.
The challenges we have faced
Last year we promised to build on our strengths, the strengths of all Maltese and Gozitans. We committed our best common efforts to secure our future. We had to face challenges and difficulties which often came from beyond our shores. Thanks to the ability and efforts of all Maltese and Gozitans, we have set the wheel in motion and started to reap the fruits. Now it is imperative, step by step, in order not to upset what has been built, that we continue reaping such benefits for our people.
This does not mean that we had no major headaches.
The steep rise in oil prices has placed great pressure on the prices of various products and services that we use. We are aware that the surcharge had an impact on our families and industries. The increase in oil prices we experienced during 2006 resulted in an increased expenditure of approximately Lm48 million when compared to 2005. Without such a problem, financial sustainability would have been achieved with a much lesser degree of sacrifice. We would have had more than Lm500,000 extra per week to spend on improving the quality of life of our people.
Another major challenge was that of illegal immigration. Until recently, we used to view this as a problem for other countries. This problem has now reached our shores. This is a major challenge which we cannot face alone. We have succeeded in persuading the European Union to step in and help us. Nonetheless, we feel that much more needs to be done. In fact, tomorrow morning (today) I will be attending a summit for EU leaders in Finland where we shall inter alia discuss the issue of illegal immigration.
The changes in tourism trends were also a substantial challenge. When, towards the beginning of this year it had seemed that we were not going to achieve the targets we set ourselves in tourism, we had to find the necessary finance in order to incentivise low-cost airlines to operate new routes towards our country. This we managed to achieve following extensive consultation with all sectors involved.
We also experienced the closure of two factories which led to the loss of over 1,000 jobs. However, our economy managed to create enough new jobs such that unemployment today is roughly at the same levels as last year. We have also managed to achieve the highest rate of persons in gainful employment. Today the labour situation is much better than how we found it in 1998, and it is actually among the best we have had over the past eight years. But this is not enough. We believe that as long as there remains at least one person genuinely looking for work, the challenge remains open.
International economic developments
Although our country is an island, we are not an isolated country, and whatever happens around the world has a bearing on us.
In the first six months of this year, the world economy grew at a somewhat fast rate. Although it seems that this growth rate slowed down slightly in the second half of the year, the world economy is expected to register a growth rate of 5.5 per cent throughout this year. On a European level, eurozone economies and, especially the major economies, continued to recover throughout this year following a somewhat poor start earlier on. Consequently, the latest indications show that the Euro zone economy is expected to grow by 2.5 per cent.
The recovery of the world economy and especially those of Malta's trading partners helped and is expected to continue helping the Maltese economy.
Projections for the coming year indicate that world economy performance is expected to be somewhat slower than that registered this year. These projections also apply to most advanced economies with which Malta has close trading relations.
During this year the world economy continued operating in the shadow of risks arising from financial imbalances on a global scale and new uncertainties concerning the performance of the US economy, as well as continuous uncertainties caused by geo-political instability, terrorist threats and diseases. Moreover, the world economy this year continued to be greatly impacted by the ever-increasing prices of oil and various other essential products and raw materials. These developments led to higher rates of inflation in many countries, including ours.
The globalisation challenge
The process of globalisation is creating major challenges for everyone, including our country. However, we feel that globalisation should be viewed as an opportunity. Our country has been operating in an open economic environment for years. Over the past years, we have used our intellect and skills to great effect and we can be proud of our achievements. We must now continue building on our strenghts, while restructuring our economy towards high value-added sectors.
The world economy is continuing to change at a fast pace. Competition in world markets has increased greatly. Jobs are nowadays created and lost much faster than ever before. These same can be said about ideas and movement of capital. At the same time, enterprises and industries are being created which require highly-skilled workers. Creation of wealth nowadays depends to a far greater degree on creativity and innovation.
Consequently, in order for our economy to be competitive it is imperative that we become more innovative, attain higher skills and be more enterprising.
All developed countries are undergoing substantial changes in their economic structures.
We are no exception in this regard. While some of our sectors have slowed down or have been wiped out, other sectors have been created and have flourished. It is important that we understand well the realities surrounding us in order to bolster and sustain what can truly work in our context, while taking on board the continuous challenges which the dynamic world economy is presenting us with.
We must continue restructuring in order to face up to forces exerted by world markets, improve investment, and consequently continue improving the economic growth rate in our country. It is for this reason that we are emphasising on training, innovation, investment and enterprise, because we are aware that in today's global context, success is achieved by those who have the courage required to create the necessary environment and invest in such fields.
The government's economic policy
Macro-economic stability is necessary for sustainable economic growth and job creation. All in all, a stable economic environment minimises business risks while encouraging investment. For this reason, the government will continue using its best endeavours for our country to achieve a low and stable rate of inflation, and a fiscal policy which assures that public finances continue to be placed on ever more solid ground. This should be conducive towards using our fiscal policy, when necessary and possible, to influence the economic sphere in our country and to aid and sustain our monetary policy.
We are strictly adhering to the rules contained in the Stability and Growth Pact as we believe that this is what our country requires and deserves.
Price fluctuations and stability are being closely monitored in order to protect low-earners as well as our country's competitiveness. At the same time we are insisting that wage increases correspond to increases in productivity in our economy.
In the sphere of public finances, great efforts have been and are being made in order to ensure their sustainability. While we insist that all that is due to the government must be collected, we are using our best endeavours to eliminate waste and to curtail public spending. In fact, public spending, except for that in sectors such as health, pensions, social services and education, is being either reduced or kept at the same levels as those for the present year.
This government's consistent, clear and determined policies are leading to stability which gives rise to further development. We were and still are consistent in our strategy towards our economic and social development and Malta's role within the European Union. We are now working towards the next logical step for our country within the European Union: adoption of the euro from January 1, 2008. We believe that this step is another important signal in the economic management of our country. It is a step which should improve stability because it reduces risks, and opens new horizons and opportunities for those who want to work in our country.
Towards a more productive country
The government will continue working towards the continuous improvement of productivity in our country. We must use our limited resources wisely and effectively for the wellbeing of our people.
Our strategy is based on two pillars. Firstly, the maintenance of a stable macro-economic environment, which helps and enables our people and enterprises to invest for the future. Secondly, we must implement the necessary reforms which help our markets to work more efficiently.
Consequently we require further investment, education and training, more research and innovation, a more enterprising culture, fair and transparent competition in our markets and more productivity in the public sector.
A helpful and productive public sector
The public sector is an essential part of the governmental, economic and social infrastructure of our country. We want a dynamic public sector, which is in tune with and sensitive to ongoing changes in the country and abroad. A public sector which responds to our country's needs is an important platform for the economic and social development we require in our country.
The public sector must justify the government's investment and trust and continue becoming more competitive. The government will continue insisting upon and demanding more value-for-money and enhanced productivity in this sector in order to facilitate the economic and social development of our people. We believe that the public sector should be another engine which helps our country to become more competitive. These are the guiding principles on which the government based the negotiations leading to the collective agreement signed last October.
Malta's economic situation
In the first six months of this year, the Maltese economy grew by 2.6 per cent in real terms, when compared to the same period last year. Growth thus doubled when compared to last year, clearly showing that the Maltese economy has now picked up impressively. This positive result was achieved in spite of intense competition in international markets, international economic instability and oil prices.
Almost all economic sectors registered an improvement when compared to the first six months of last year. Certain sectors such as transport and communications and the financial sector grew at a substantial rate. Other sectors grew at a slower though still satisfactory rate. The value-added of the hotel and restaurants sectors decreased slightly.
Over this period, investment in buildings and machinery increased by 7.4 per cent when compared to last year, reaching over Lm210 million. This is heavy investment which clearly shows the ever-increasing confidence in Maltese economic development.
During the same period, our workers' income increased by more than Lm13 million or 3 per cent and exceeded Lm461 million. Profits registered by our businesses increased by almost Lm26 million, reaching almost Lm388 million.
The tourism sector
During the first eight months of the year, the number of tourists visiting our country decreased by 29,800 to 767,836, while the average amount of nights spent by tourists in our country increased to 9.8. The number of cruise passengers visiting our country increased by more than 31 per cent. Gross profit from tourism maintained the same level as in the previous year. During the first six months of this year, profits from tourism were estimated to be in excess of Lm101 million. This means that, per capita, each tourist spent approximately Lm215, an increase of approximately Lm6 when compared to last year.
While we acknowledge the challenges that tourism is facing in our country, it would be mistaken to depict the situation worse than it is. We believe that this sector is still viable, and while we must continue working hard to achieve better results, we are convinced that we have a solid basis on which to continue building. We are determined to do whatever is necessary in order to overcome the challenges faced by the tourism sector and to raise its share in the Maltese economy. We have already done a lot in this regard. We invested heavily to improve our tourism product, especially the historical and cultural heritage and the environment. And we shall continue doing so. However, in order to achieve the desired results, it is necessary that we all join forces and give our contribution. The success of our tourism product depends on each and every one of us.
The manufacturing sector
Following the upheavals we experienced last year in the manufacturing sector, this sector which is so important for our country has started to recover and grow again. Sales by large enterprises have increased by more than 8 per cent to almost Lm495 million in the first six months of this year, when compared to the same period last year. Investment in this sector increased by almost 30 per cent to more than Lm31 million. This is a positive sign which shows confidence in this sector's viability. All in all, the average income of workers employed in the manufacturing sector increased by more than Lm7 per week, to almost Lm125 per week.
Restructuring which have been carried or is still underway in this productive sector is yielding the desired results.
Factories are continuing to invest and have stepped up their production. New sectors, such as the pharmaceutical sector, continue to grow. These are now registering sales of approximately Lm30 million yearly and employ around 800 people.
The dynamism evident in the manufacturing sector must be supported in every way. The governent believes that in our country there is a niche for a manufacturing sector oriented towards the production of high added-value products, which will allow our country to compete successfully in international markets. As promised in the pre-budget document, the government is now publishing an industrial policy document which renews and fine-tunes its strategy for this sector.
Foreign trade
In the first eight months of this year, imports increased by more than Lm129 million to almost Lm965 million. During the same period, exports increased by more than Lm65 million and now exceed Lm593 million. The foreign trade deficit increased by more than Lm64 million due to higher imports of an industrial and capital nature. Eventually, many of these will be re-exported, meaning more economic growth. The increase in imports was also caused by the higher oil bill.
Foreign investment
In the first six months of this year, foreign investment amounted to Lm312 million, that is Lm212 million more than last year and actually Lm127 million more than the whole of last year!
These figures speak for themselves: our policies are delivering. Ours is a credible country embracing serious policies. We are succeeding in attracting the foreign investment necessary in order to continue creating jobs and wealth in our country.
Inflation
As we projected last year, inflation this year was pushed up due to the steep rise in oil prices. These increases were reflected in the retail price index and hence in the inflation registered for this year. Consequently, in September, inflation reached 3.42 per cent.
It now seems that oil prices have started to stabilise slightly. We hope that what we experienced over the past few weeks is a sign of times to come. While it is projected that inflation will start falling towards the end of this year, the government will be using its best endeavours to ensure that prices in our markets remain fair and transparent.
In this context, it is worth mentioning the agreement which the government reached with medicine importers and which has already led to lower prices for a number of medicines. This deal also includes an agreement in principle on a mechanism for transparency in the prices of medicines. I hope that over the coming weeks this mechanism becomes operative.
Job creation
Our final aim is not solid public finances and a healthy economy, but a good quality of life for the people and a secure future. Work is the key. Work provides a living and dignity to the workers and families.
Creation of work is our absolute priority.
In June we attained a record of 146,498 persons in gainful employment, of whom 139,437 worked full time. This occurred at the same time as employment in the public sector was reduced.
In June, the number of persons registering for work in the first part of the employment register amounted to 6,601. The unemployment rate stood at 4.5 per cent. Although this success in job creation speaks for itself, I believe that one person unemployed is one too many. Therefore, the government will leave no stone unturned in this endeavour.
In this connection, I must underline the substantial investment the government has made in the education sector in order to help everyone to acquire the necessary skills required for work and to remain relevant for the labour market. We want our education and training systems to be continually updated so that workers will be able to respond to the changes and demands of the labour market and improve productivity in the country. It is in this way that in today's world we can secure the future of our workers and their families.
An overview of the current year would not be complete without giving account of a number of success stories.
We had said that our aim was to reduce the deficit to between 3 per cent and 2.8 per cent of GDP from 3.9 per cent last year. This goal has been achieved and it is expected that this year the deficit will be Lm57 million from Lm75 million last year. This means a decrease of Lm21 million. When the deficit is computed in accortdance with EU regulations, this year's deficit will work out at 2.6 per cent, that is, Lm55 million.
The government's financial position
Government revenue increased by Lm69 million to reach Lm965 million. The increase in tax revenues reflects the positive trends in the economic performance of the country in its areas of economic activity. It is worth noting that in the last budget, that of 2006, Government did not introduce new forms of taxation nor did it increase existing tax rates.
Income tax revenue increased by Lm28m. The major part of this increase is attributable to increased activity in most economic sectors, including employment income. This is also reflected in a Lm14 million increase in social security contributions achieved due to the increase in the number of gainfully occupied people as well as the increase in Malta's average employment income at 5 per.
VAT revenue rose by around Lm6 million, slightly less than projected due to larger refunds made to large private sector construction projects that were expected to account for income this year but in fact will do this next year.
The government has also registered a further Lm7 million increase in revenue from other sources, mainly due to the Italian and EU Protocol funding.
Government recurrent expenditure increased by Lm33 million when compared to last year. The main increase is in social service pensions, which is around Lm12 .
The government also increased its contribution to the Social Security Contributory Fund by Lm5 million as a result of increased employment income.
There was also a Lm2 million expenditure increase in the sector of the elderly. An additional Lm3 million were transferred to Enemalta to reduce the impact of the international fuel price increases.
There was an increase in public sector wages of around Lm 4 million as well as an increase in tax refunds paid of Lm5 million. There was an expenditure increase of Lm3 million in interest payments on loans since the expected privatisation programme was not fully completed.
Capital expenditure increased by Lm20 million, compared to the previous year. Increases of Lm2 million went for the education sector, Lm2 million on tourism, Lm4 million on Gozo, and Lm2 million on the health sector, apart from the Mater Dei Hospital project.
The agriculture and environment sectors benefited from an additional Lm7 million allocation during this year, a reflection of Government's commitment towards this sector. There was also a further investment of Lm4 million in sewage treatment plants.
At all levels of education, we are carrying out the biggest investment ever. Today, from every Lm100 we produce, we spend Lm6 on education. And this is already yielding results. I will illustrate briefly: in the last five years, the number of early school leavers decreased by 10 percent, youths in post-secondary or vocational courses increased by 26 per cent, while 20,000 youths participated in various fields and levels of advanced and higher education. Our country can indeed be proud of the fact that even during times when we are trying to curtail public spending, it still continued investing heavily on education.
The same can be said for the environment sector, ranging from waste management, to renewable sources of energy, afforestation, agriculture and fisheries, and monitoring of air quality. Today our country is addressing these issues seriously and with the required heavy investment.
Although we managed to achieve the strict financial objectives which we set ourselves during this year, our country still continued sustaining its social fabric and the related expenditure. This year alone, the pensions bill rose by Lm10.8 million from last year. To these one may add the vast array of other social benefits as well as the net of personalised social services in housing, children, families, disabled persons, drugs, alcohol, mental health, and many others. In these sectors, the government also continued sustaining an extensive solidarity programme.
Besides, we set in motion the pensions reform, an important reform which while not affecting present-day pensioners or those who are close to being of pensionable age, secures the future of our youth.
In Gozo we achieved substantial progress in developing the physical and tourism infrastructure. The main challenge for Gozo remains employment, where the progress seen in Malta has not been mirrored in Gozo.
The government is doing its part in this regard by transferring to Gozo back-office work which can be done there.
Throughout this year, we left no stone unturned in order to continue making a success out of Malta's EU membership. Malta was one of the first new member states to commit all its structural funds for the 2004-2006 period towards projects, and it is the only country to have committed all funds derived from the Cohesion Funds.
Malta is one of the few new member states to have used all funds for 2006, six months in advance of the stipulated date - December 2006. Not only has our country managed to use all pre-accession funds at its disposal, but it has also benefited from many other funds which other countries did not manage to tap into on time. Seventy-eight projects with a combined value of approximately Lm50m are being executed in order to improve the standard of living of the Maltese and Gozitans.
In this connection I reiterate what I had declared on being sworn in as Prime Minister. My message to the Maltese people is: do not judge us on our words, but judge us on our achievements.
For all these efforts my heartfelt thanks go to my fellow ministers and members of Parliament. I thank all state and private sector workers, owners and investors, the self-employed and all members of the Malta Council for Economic and Social Development.
I thank you all for efforts throughout this year, which have helped us to overcome many obstacles and carry out a lot of work.
We have achieved a lot together, but much more can be done. And we must do more. We must never take our foot off the pedal. We must also increase our efficiency and quality in every sector, achieving to the best of our abilities as a society, as a nation and with the resources available to us.
The financial position 2007
I am presenting a budget that confirms that our country's finances are strong and sustainable. We have reduced the financial deficit to less than 3 per cent of GDP. We are estimating that the deficit in 2007 will be 2.5 per cent of GDP.
The government is projecting a deficit of less than 1 per cent of GDP by 2009.
The government is estimating an increase in revenue of Lm27 million over 2006.
An additional Lm7 million will be received through income tax revenues, due to the changes in the income tax bands. Social security contributions will also increase by Lm12 million, partly due to an additional weekly contribution attributed to 2007 having an extra Monday, as well as due to growth in employment and employment income resulting from the positive trend being experienced in our economy.
The increase in excise duty revenues is expected to result from the transformation made earlier this year in Enemalta's profits on fuels to excise duties. This way we will be able to transfer these funds back to the corporation to subsidise electricity generation whilst removing cross-subsidisation across Enemalta's divisions and we will be able to continue the fuel liberalisation process without a negative impact on electricity bills. Although there are no financial implications, we will continue with the changes we have started in 2005 to gradually implement the EU minimum excise duty levels on energy products. VAT will contribute an increased revenue of Lm6 million in line with the growth in economic activity being experienced and which we expect to continue in 2007.
As we have indicated in the pre-budget document, the government is in the process of better regulating the gaming machines in use in the gaming aector. We have set out a number of measures that will ensure that these machines will be operated within a far better regulatory environment. We will introduce a central monitoring system to ensure that children do not have access to the gaming machines and to ensure that gaming taxes are collected.
The government's recurrent expenditure is expected to increase by Lm6.6 million only. Whilst social service pensions are expected to increase by Lm12.1 million, health related expenditure by Lm4 million, and another Lm8.3 million transferred to Enemalta, the government will offset these increased costs by continuing its expenditure reduction programme leading to a reduction in administrative expenditure of around Lm17.8 million.
Capital investment expenditure will increase by Lm17 million in 2007 whilst expenditure on the Mater Dei Hospital project will decrease by Lm8 million and Italian Protocol funded projects will be concluded by the end of this year.
We will make an additional Lm10 million investment in education, Lm3 million in tourism, Lm2 million in Gozo, Lm4 million in health, Lm6 million in the environment and Lm5 million in the roads network.
Education and training
Every government led by my party has always believed that the key to securing our future lies in education. Investment in education is always a guarantee of open opportunities for our children. Education is the key to success for them and for our country.
I wish to avail myself of this occasion to thank all those who have given and are giving their contribution in this field. In particular I want to publicly thank all educators and teachers. With great dedication you are helping to bring out the best in our children. You are the principal builders of our country. For this, I thank you.
In the education and training sector, we are estimating that for the forthcoming year we shall invest the global sum of more than Lm 121 million. We shall thus allocate Lm 12 million more than last year.
This means that on average we shall invest Lm1,332 every year on every boy and girl, youth and adult within our educational system. This average investment figure does not include related capital expenditure.
Compulsory education
During next year we shall continue our project of building and modernising state schools. We are planning to complete the construction of two new secondary schools, one in Qormi and another in Cospicua.
We shall start building new schools in Mosta, Pembroke and Gozo. We shall continue with the complete modernisation of the Boys' Junior Lyceum in Hamrun. Various maintenance and modernisation works in different schools around Malta and Gozo will be undertaken. It is estimated that in 2007 the government will invest Lm5 million on these projects under the financial arrangements scheme which the Foundation for Tomorrow's Schools has set in place.
Building alone are not sufficient. The discussions between the Ministry of Education and the Malta Union of Teachers have now reached their final stages. With pleasure I would like to report to the House the constructive and collaborative spirit between the two parties. We trust that we will reach an agreement that will strengthen the extensive reform taking place in the compulsory education sphere.
We expect nothing bust the best education for our children.
We want State schools to have the most modern science laboratories for physics, chemistry, biology and technology, as well as language laboratories. Here we shall invest over Lm 1.5 million.
In state schools, we shall have one hundred and three laboratories of the highest calibre, according to European Union standards.
We consider Church and private schools as our partners in the education of our children. This belief leads us to two important programmes:
First, this budget is proposing an expenditure of Lm12.75 million for Church Schools. This represents an increase of Lm1 million over last year's allocation. This means an average of Lm 755 for every boy and girl.
Second, we are aware of the expenses incurred by parents who decide to send their children to private schools. In 2003 we introduced a deduction from taxable income to make up for part of the fees paid. At that time we fixed a maximum of Lm 200 as deductible expenses for primary level students, and Lm 300 for secondary level. With effect from January 1, the government will double these amounts to Lm 400 for primary level and Lm 600 for secondary level for every student.
Advanced and higher education
We want to continue to strengthen the advanced and higher education sector.
The government shall make maximum use of EU funds allocated to Malta to continue strengthening the University and Mcast, two education pillars in our country.
Next year we shall initiate a programme for construction and purchase of equipment spread over a number of years. We are planning an expenditure of Lm 4.3 million and Lm4.5 million respectively on these two institutions. In this way we will have the necessary space to allow the number of students who pursue studies and training to continue increasing. At the same time they will have the required facilities and services to receive education and training.
Recurrent expenditure for the coming year for advanced and higher education is estimated to reach the sum of Lm19.3 million. The government is raising the recurrent grant to the University by Lm700,000 to Lm11.3 million. It is pertinent to remember that in addition to these funds, the government is investing almost Lm 9 million in direct student support in the form of stipends.
We are again allocating Lm 200,000 for a number of scholarships at Masters and Doctorate level under the Malta Government Scholarship Scheme which we launched successfully this year.
During pre-budget discussions we met a number of students following private post-secondary courses or private university programmes on a full-time basis. The government has decided that as of the 2007 scholastic year, full-time students following higher education courses in private instutions will benefit from maintenance grants in accordance with recommendations to be made by the National Commission for Higher Education. We believe that the licensed private sector educational institutions are an asset to our country.
This sector has an important role to play in developing Malta as a regional centre for training and educational services.
We believe that we should never stop learning and training. We shall dedicate EU funds for this purpose, or more specifically Lm 3.5 million from the European Social Fund. These include teaching and training courses for all parts of our society.
In the sports sector the government is voting Lm 1.1 million. The capital vote of Lm 200,000 incorporates the continuation of the sports complex in Kirkop. In this context it is worth mentioning that in addition to this investment the government is investing in sports facilities. Although these are based in government schools, they are intended to be used after school hours also by sports organisations and those having a keen interest in sports. In this way we shall have a number of modern floodlit grounds with artificial turf, spread all over Malta and Gozo. This means that in addition to the ground in Kirkop, over the course of the next three years we shall have grounds of this standard in Qormi, Cospicua, Luqa, Mosta, Naxxar and Gozo.
We have one aim -for our people to be among the best educated and trained people in the world.
The euro
Next year will be the year leading our country to another important step in its socio-economic development. In view of the economic progress which our country is registering, it seems more and more likely that the euro will be adopted on January 2008. Entry in the eurozone, which boasts the second strongest currency in the world, should give greater stability to our economy. Thereafter, our country will become more attractive for those wishing to invest and create jobs in our country.
The euro gave Europe stability not only by eliminating exchange rate risks between the participating countries, but also by creating a monetary environment characterised by low long-term interest rates. The euro has been conducive towards a monetary policy which has always favoured price stability.
Some still argue that our country should take more time before adopting the euro, without forwarding any plausible economic reasons. In this connection it is argued that our country should first concentrate on economic growth, while seemingly ignoring the fact the euro is an important tool for generating the desired economic growth.
There are various risks associated with undue delays in adopting the euro. The countries which have not set this process in motion are already being considered as countries still having serious economic problems. We could be looked upon as lacking commitment towards a serious economic policy. To the contrary, I am proud to proclaim that today everyone considers us to be on track.
Foreign investment
Our economy has continued to develop and grow while replacing old economic structures which were no longer relevant for Malta. The measures we have taken have yielded positive results. The record level of investment bears testimony to this fact.
Over the past nine months, Malta Enterprise approved 71 new projects which over the next three years are set to create 3,600 new jobs and generate Lm44 million worth of investment. These figures relate only to those sectors which benefit from the incentives we are offering.
The economy is however much larger than that.
In order to continue sustaining and stimulating new investment, in addition to the Lm2.3 million which are being allocated to Malta Enterprise to create aid schemes to industry, the government will allocate a further Lm1 million from EU funds for this purpose; 25 per cent of these will be dedicated exclusively to Gozo.
The time has come to depart from the present incentives structure under the Business Promotion Act. We need to adopt a flexible legal framework. During the course of the forthcoming year, we will be presenting these changes in our legal structures for debate in Parliament.
While on the subject of foreign investment, I cannot fail to mention the largest foreign investment this country has ever seen, namely the Smart City project in Ricasoli. Six years ago we had proclaimed our intention to transform Malta into a Mediterranean information technology capital.
Back then, we were told by some quarters that our vision was nothing but pie in the sky.
These same detractors had proposed instead a future chained to the past whereby Malta would isolate itself from the rest of the world in order to protect traditional manufacturing industries such as textiles and leather products. It was these same detractors who vehemently opposed Malta's entry into the European Union.
Smart City alone represents more than Lm100 million worth of investment. Thousands of Maltese citizens will earn their daily living from this investment. We should all feel very proud of this major asset which our country stands to gain.
Government's strategy for industry
Today we are publishing the government's Industrial Strategy for Malta. This strategy was drawn up following extensive consultation meetings held with various stakeholders, in particular the Federation of Industry. We are certain that this strategy will be critical to further economic growth and employment opportunity.
Information technology
Smart City was not a coincidence. The investors we persuaded to come to our shores had many other options where to base their European expansion project.
This year the European Union recognized the on-line public service provided by the Maltese government as the second best in all Europe. The World Economic Forum reported that the government of Malta is the 12th highest ranking government in the world which uses technology to improve its level of services. This makes us competitive and improves the quality of life for all Maltese.
Malta's e-government has reached yet another important stage. During the coming year a unique portal will be built with an investment of Lm400,000. This will provide a one-stop shop for all electronic public services, and will constitute the highest level public service provided by any government.
We are now in the last three years of the National Strategic Plan for Information and Communications Technology which was launched in the beginning of 2003. Those who were sceptical back then, now have the perfect answer. Today our country boasts and impressive information society and economy.
Over the course of the coming three years we shall be working towards a more ambitious National Strategic Plan for Technology. I am convinced that within three years' time, I will have the satisfaction to declare that our country is amongst the most technologically sophisticated in the world.
Research and innovation
If we want our country to be at the forefront of the more competitive countries and to attract the best investment, we have to strengthen our commitment towards research and innovation.
As we announced in the National Strategy for Research and Innovation, the government is increasing public expenditure on research and innovation. This strategy proposes Lm1.25 million for the National Research and Innovation Programme. I am pleased to announce that the allocation shall exceed this amount by Lm250,000, meaning a total of Lm1.5 million . In this connection I would like to mention the fact that the government has joined forces with the Malta Council for Science and Technology, Malta Enterprise, University and the private sector. This team has set up EuroMedITI, which identified and initiated a number of projects in the designated technological sectors.
Tourism
I have already stressed on the importance of the tourism industry in our country. Our country can attract more tourists if we are competitive, if we continue to invest in our product, if we can offer a unique positive experience to our visitors and if we understand that we all have a role to play in this industry.
The government will not refrain from investing wherever necessary to ensure that this sector grows and improves tourist quality. Next year we will dedicate Lm15 million towards this important sector to our economy. This amount represents an increase of almost 40 per cent with respect to the approved budget for 2006.
Next year the government will again allocate Lm 8 million directly to the Malta Tourism Authority. Apart from this amount we will allocate a further Lm 7.3 million towards improving our tourism product. This includes continuation of the Mnajdra and Hagar Qim neolithic temple projects, the development of new beaches and better management of existing ones, schemes to directly support the tourism industry, and the continuation of the branding exercise that also means additional marketing funds for the country.
Government expenditure on the tourism product proper, including the heritage part of the product, will amount to Lm 5 million.
To this I must also add the investment being made through other ministries to implement programmes and projects intended to considerably enhance our tourist product, which include the environment in general, road and countryside cleanliness, clean seas, clean air, embellishment of roads with trees, flowers and general landscaping, new high quality roads and rehabilitated village cores and squares.
I will also add the value of the projects that we will finance through the consolidated fund and the EU funds to restore our heritage sites wherever necessary. This applies to all our heritage sites that numerous in our country, including the unique fortifications of Malta and Gozo.
We are doing all this because we firmly believe that we have a unique product which can face up to the harsh competition we face. We know that we have a lot to offer - a mix of a historical heritage and a rich culture, beautiful sea and natural coastline, and colourful villages and countryside. Apart from this Gozo offers more tourism product potential which adds value to the Maltese product. This is why we need to promote Gozo for what it is ñ a unique destination with special characteristics.
Air Malta will remain a strategic asset to our country since the service it provides is in line with our national priorities and requirements, including those of industry.
Nevertheless, present day reality obliges us to expand our tourist channels. This is why earlier this year we took the first steps and introduced schemes to attract a low cost airline other than those already operating here. At this point it is pertinent to point out that these schemes will cost the government more than Lm1 million. I am saying this to explain to everyone that the price of a low cost airline ticket is cheap because we are all paying part of it.
In any case the government is convinced that this is the best direction to follow for our country. For this reason we will soon take the second step decided earlier this year, that is to promote the creation of new routes between Malta and new source markets in European countries.
Over these last few days the government has received recommendations from the Consultative Council established a few weeks ago. These recommendations will form an integral part of the National Tourism Plan. The intention is to start a new implementation phase within the shortest possible time frame.
VAT exemption without credit on cultural activities
Culture is an integral part of our national identity and an essential feature of the tourism package. We believe that the time has come to continue assisting the local artistic community by exempting without credit the VAT element of those services and activities of a cultural nature organised by recognised cultural non for profit organisations.
This measure should encourage the provision and production of more cultural activity in places like Gozo so as to further enhance cultural and economic development in similar places.
Host families
A particular niche closely related to tourism which I would like to address in this budget is that of host families. Earlier this year, we had announced an advantageous fiscal scheme for this service. We believe that we should go a step further by providing the option to these operators to obtain an exemption from social security contributions with retrospective effect.
Financial services
Malta has already achieved important successes in the financial services sector. This year we estimate that around 2,500 companies will be added to the registry of companies.
The total number of registered companies will reach 40,000. We also have 18 banking institutions, more than 150 investment funds and eight insurance management companies.
Earlier this year we concluded an agreement with the European Commission that effectively safeguards the full tax imputation system. We are currently discussing the anti-abuse measures in our proposed tax system with the Code of Conduct (Business Taxation) Group. The government expects to conclude this political process shortly. We will soon be publishing the necessary legislation to implement the agreement reached with the European Commission.
Small and medium-sized enterprises
We believe that the self-employed and small enterprises constitute the heartbeat of our economy. Through all the initiatives announced in this budget, we intend to generate more work for them in order to create new jobs.
An important measure we will be taking this year enables men or women working in a family business to register as employees of the same family business for fiscal purposes.
This means that any man or woman working in their family business will be allowed to be registered on the company's books, thus having the opportunity and advantage to enjoy all social benefits while also being entitled to a pension on payment of their Social Security contributions. For the families concerned this doesn't only mean better recognition for their work, but family businesses will also benefit from a tax reduction.
We shall allocate Lm1.4 million, almost Lm1 million more than last year, for the improvement of work places from which a number of self-employed small enterprises operate. These funds shall lead to the development of the Crafts Village in Ta' Qali under the stewardship of Mcast.
We shall also continue the improvement programme in industrial zones for SMEs in Handaq, Mriehel, Zebbug, Mosta, Attard and Luqa.
This year we aim to reduce operating expenses for the self-employed and owners of small enterprises. We intend to finalise amendments to the Trading Licences Regulations which allow for a lowering of trading licence fees while facilitating the process for the issue of trading licences, by providing the necessary measures for such licences to be issued within a definite time frame.
Venture capital fund
The government is still committed towards the creation of a venture capital fund. Following various attempts to operate this fund, we believe that the best way forward is for this fund to be licensed as a collective investment scheme under the auspices of the Malta Financial Services Authority. The government, through Malta Government Investments Limited, shall promote and assist the financing of this fund by contributing Lm900,000 of the initial capital.
Port reform
Port Reform is of paramount importance in order to improve our competitiveness. A new operator has started working in Grand Harbour, and discussions have continued with all the parties involved.
We were well aware that we would be engaged in difficult negotiations with the various port-related sectors. Talks with port workers fell back slightly due to developments within the General Workers Union. Now that the Malta Dockers' Union and the Union Haddiema Maghqudin have been recognised as the unions which have a right to negotiate for their respective sectors, discussions have resumed.
The ongoing talks include the reorganisation of port workers, the removal of outdated practices and the reduction of tariffs for cargo handling.
Improving regulation
Improving regulation and cutting down on bureaucracy are essential for our business sector. Consequently, the government will continue to insist that all kinds of regulation should be proportionate. Much has already been achieved in this field. We are still not satisfied and we want further improvement. We need to continue removing obstacles to business.
Plan of action for simplification
In order to achieve these aims, the Simplification Action Plan puts forward five main government priorities with regards to better regulation. These are:-
• Setting up of a one-stop-shop entity or consolidation of existing entities. This strategic thrust aims at offering a range of Government services in an easy to get manner that saves businesses and citizens' time and money by providing, a single, yet all inclusive point of access. Government entities also stand to gain by making better use of human and physical resources available.
• Revision of procedures / processes for the attainment of better efficiency levels and customer service delivery in a number of .areas.
• Use of ICT and e-government services. This strategic thrust builds on Malta's achievements within ICT . The main advantages of this thrust is that it saves businesses and citizens' time and money by avoiding them having to go round in person to a number of entities and by improving clarity and accessibility of regulations.
• Simplifying legislation and repealing obsolete legislation. This strategic thrust intends to make legislation clear, understandable, up-to-date and user-friendly thus leading to better quality regulations.
• Consolidation of forms. Complementary to the above strategic thrusts, these measures aim to remove excessive complexity, thereby making the government-customer interface more simple and user-friendly.
Over 100 proposals were identified for implementation of which more than 30 are deemed to be of high priority and around 20 proposals can be implemented in the immediate timeframe. Implementation of over 50 projects has been targeted to commence immediately.
These proposals are anticipated to have an effect on the whole of society, albeit on different levels, as they deal with various aspects of everyday life such as the provision of health, education, business and social security services.
Most of the projects to be implemented are expected to have far reaching effects. Examples of such projects include:-
• The setting up a Business Facilitation Centre to provide preliminary information to business and to act as a one-stop-shop entity to facilitate all registration applications from business start-ups with a view to simplify the current burdensome, time-consuming, and unnecessary bureaucratic procedures to register a business
• The introduction of a single application form for the assessment for all social security and other benefits with a view to amalgamate the benefit application forms required, for example, for social assistance, old age pensions, supplementary allowances and medical assistance.
Gozo
In its pre-budget document the governemnt published a socio-economic strategy for Gozo. This strategy emphasised the need to sustain a distinct economy for this island, expanding its labour market, investing in education and research, and improving the quality of life for Gozitans.
Gozo's budget for the forthcoming year will increase by Lm2.4 million when compared to last year, taking the total allocation to approximately Lm29 million. This investment will enable Gozo to continue developing as it deserves.
We are allocating a record sum of Lm9 million for capital projects in Gozo. One must not forget to add the Lm3 million invested in the building of new education complexes by the Foundation for Tomorrow's Schools and Lm3.3 million for the sewage treatment plant.
Gozo should also benefit from the cruiseliners sector. To this end, the Maritime Authority will invest in berthing facilities for this sector.
We realize the huge impact of seasonality on the Gozitan tourism market. We have therefore decided that as from January 1, on renewal or issue of a new licence, accommodation and catering establishments in Gozo will pay 75 per cent of the present rates.
During 2006, the government continued to identify further public services which can be transferred to Gozo. The services identified include: the Freephone 153 service, payroll work related to public sector employees and Treasury pensions, work related to verification of Civil Status Certificates issued by the Public Registry.
By the end of this year, we expect a number of these services would have been transferred to Gozo. This means that about 30 Gozitan workers who work in Malta will be now be able to work in Gozo. This initiative will continue throughout next year with the overall aim that Gozitan workers in the general service grades of the public service will be employed in Gozo.
The government's vision is that all back-office services required by the public administration will be carried out in Gozo. It believes that Gozo provides an ideal environment for this kind of work and encourages the private sector to follow in Government's footsteps.
All this should help Gozo to have an economy built on the basis of its distinctiveness, strengthen education and training opportunities while leading to an improvement in quality of life.
Health and community care
Our country can boast a health service of the highest quality. All this is due to the dedication and commitment of the workers in this field, to the doctors, consultants, nurses, midwives, physiotherapists, occupational therapists, social workers, medical laboratory technicians, other paramedics and support staff. On behalf of the Maltese people I wish to thank them all.
In order to secure our future, we must ensure that we shall continue to give the necessary priority to the level and quality of our health services. For this reason the government will continue to invest heavily in the health sector. It was truly interesting to note that a substantial number of questionnaires we received from the public in reaction to the pre-Budget Document clearly revealed that the health sector should continue to be the highest priority of government.
Within the next 10 months, the government will inaugurate the largest project that a Maltese government has ever embarked upon. In July 2007, Skanska is bound to complete Mater Dei Hospital and hand it over to the government. This should allow Maltese people to start enjoying a quantum leap in health services.
The number of interventions at St Luke's is always on the increase. While during 2000 slightly less than 25,000 interventions were performed, last year more than 32,000 interventions were performed which means an increase of 7,000 interventions - an average of 20 per day. Notwithstanding this, the government wants to respond to the ever increasing demand from patients who are waiting for medical intervention. I wish to make it clear that here I am not referring to urgent interventions: these are always performed immediately. While we are investing in a hospital that will have more operating theatres, we have to admit that human resources in this sector are scarce. Therefore the government is working on a solution for the reduction of waiting time.
We have taken these decisions in order to continue to improve our health services.
We shall build a rehabilitation facility of 280 beds in Luqa, near St Vincent de Paule Residence. This means that the number of beds will be four times higher than the number we have today. Our project also permits patients who remain in hospital for rehabilitation purposes to be able to receive outpatient services while all the beds will be used to provide acute care. We shall transform Zammit Clapp Hospital to cater for Oncology and Dermatology services of the highest standard with an investment of Lm3.5 million. The demand for cancer therapy is always on the increase and nowadays Boffa Hospital has become too small to cope. The new service will offer better facilities to both patients and workers.
It is also time to make a new investment on medical equipment for oncology. We shall invest heavily in the purchase of two linear accelerators which cost around Lm2 million.
A few days ago I had the pleasure of opening the complex of Madre Theresa at St Vincent which accommodates 108 elderly women. This is another confirmation of the government's commitment towards the elderly population. This project, which cost Lm3 million, is yet another step in a wide modernisation project which started a few years back.
Next year construction work will begin on the Residence for the Elderly at Mellieha on the basis of a public private partnership.
Personalised social services and the disability sector
The social sector will remain the main pillar of the government's policy. Next year expenditure on social benefits will reach a record of Lm243.3 million. This is a sector which strengthens Maltese society and contributes indirectly to the economy.
We cannot secure a future for our children unless we recognise the challenge before us of sustaining an adequate pensions system for future generations. The political convenience of procrastinating on this problem is not in the interest of our youths. The government has presented to this Parliament a draft which envisages a sustainable and adequate pensions system. I would like to express my gratitude to all those who have made a contribution in this direction so that next year we can start implementing this important reform.
In addition to the government's expenditure on social benefits