Government revenue exceeded targets in January

Last year's economic growth of over 2.7 per cent was being sustained this year and government revenue in January was higher than projected, Parliamentary Secretary Tonio Fenech told Parliament yesterday.

He said tax revenue rose from Lm222 million in 2005 to Lm256.6 million last year even though no new tax measures were introduced. That was Lm13.5 million more than projected the previous year and more than Lm6 million from what was projected when the budget speech was presented last October.

This year, despite the income tax cuts announced in the budget, revenue in January reached Lm8.2 million, which was Lm1.2 million higher than projected. VAT revenue reached Lm16 million when the projection was of Lm14.5 million.

Mr Fenech was speaking at the introduction of the debate on a Bill to implement the budget measures.

He recalled that the main aim of the budget was to continue to strengthen the economy and public finances so as to give a sound future to the people. This was an exercise which focused particularly on education, including worker training, research and innovation, health and the environment. It included incentives to further encourage those who wished to work and it also reduced income tax.

Mr Fenech said economic and financial targets set for last year had been reached and this enabled the government to ease fiscal burdens for 2007 so as to further stimulate growth.

This performance was achieved against the backdrop of a reduction in the deficit, which fell below the three per cent threshold.

Mr Fenech said 2005 was a good year for investment at Lm219 million but 2006 was far better, with investment reaching Lm487 million up to September. True that included the Lm80 million sale of Maltacom, but it also included growth in many areas such as financial services, whose contribution to the economy in two years rose by 30 per cent per year.

Exports in the year up to last November rose by 12 per cent and imports were also up, both in industrial supplies and consumer goods.

Inflation last year had risen somewhat because of the impact of oil prices but had now started to decline. It was positive that oil prices were now falling and as a result the power surcharge would drop to 45 per cent from a peak of 63 per cent. And there was stability in fuel prices with the likelihood that they too would fall.

Turning to the Bill, Mr Fenech said Parliament was being asked to authorise government borrowing of up to Lm100 million. This figure would allow for flexibility, although the deficit would only be Lm50 million.

The Bill also amended the Duty on Documents and Transfers Act raising the exempt level of tax on inherited dwellings to Lm15,000 from the current Lm10,000, along with other concessions as announced in the budget.

The Income Tax Management Act was being amended to facilitate information sharing between the tax entities with the possible eventual target of merging the Inland Revenue and VAT departments. Furthermore, in highly technical appeals involving income tax and VAT with the contested value being more than Lm500,000, cases would henceforth be heard by three judges and not by one as at present.

The most important sections of this legislation would be the revision of the income tax bands leading to a substantial reduction of income tax as announced in the budget.

As a result, couples earning up to Lm4,500 would not be charged income tax. And, more importantly, couples earning between Lm4,500 and Lm8,000 would be charged tax at only 15 per cent. As a result, in most cases, tax on overtime would be equivalent to that on part-time work.

Those earning between Lm8,000 and Lm10,000 would pay tax at 25 per cent when some of this amount was previously charged at 30 per cent.

Similar changes were being made with regard to single persons.

As a result of these changes, married couples opting for separate computation and being charged tax at 35 per cent would save Lm310.

These changes would continue to be fine tuned as the economy improved, Mr Fenech said.

He pointed out that supplementary assistance had been improved by 10 per cent. Part-timers could opt for lower rates of national insurance, although benefits would be proportional.

The government was doubling its assistance to parents who send their children to private schools and extending this assistance to parents who send children to childcare centres.

Persons with disabilities would henceforth not lose their benefit when they married a person who did not have a disability. The same concept applied to widows and widowers who remarried, up to five years after the second marriage.

This budget also included, among many other measures, an injection of funding in education particularly in new school building and better laboratories and there was record spending in tourism. All the measures would be explained in a leaflet to be distributed to all households, when the consultation process for the 2008 budget would also be launched.