The government is taking the opportunity provided by euro adoption to change its debt structure and is considering a bond issue of up to €300 million next year, Parliamentary Secretary Tonio Fenech told Parliament yesterday.

He said that the structure of government debt was currently fragmented. Upon euro adoption, government bonds may be traded abroad, but in order to raise international interest, such bond issues had to be of a certain size.

The government would, therefore, be taking a longer term view of its debt management by issuing stocks for a larger amount than had been the case to date, thus benefiting from lower interest and also reducing the need for short-term treasury bills which carried higher costs.

The eurobond, he said, would group the government's borrowing needs for next year, roll over stock which was about to mature and bring forward other issues due in 2009 and 2010.

Government debt, however, would next year still fall to 60 per cent of GDP from 65 per cent this year, thus bringing Malta within the Maastricht requirements for euro adoption, without the need for further privatisations or other measures. The debt would be further reduced to 53 per cent of GDP by 2010.

Mr Fenech said it was important for a eurozone country to participate in international financial markets. The eurobond issue would be launched on the Malta Stock Exchange but the securities depositry would be linked to other bourses so that there could be easier participation by foreign investors.

Mr Fenech make his remarks when he opened the debate on the Budget Measures Implementation Bill, which will formally bring into force the budget measures.

This budget, he said, was reducing income tax for the second consecutive year and it was the third budget without any new taxes.

This was also a budget which would further consolidate public finances, such that the deficit at the end of next year would be Lm30 million, which was Lm20 million less than this year and five times lower than the all time record set under the Labour government. By 2010 the government was projecting to render the deficit to the history books.

He said the government was managing to grow its revenue without increasing taxes because the economy was growing at close to 4 per cent.

The Budget featured Lm140 million in capital expenditure and increases in social outlays including extending children's allowance to an additional 25,000 children and raising the allowance for another 30,000. There were other benefits for pensioners and people with disabilities, among others, along with incentives for further economic growth.

Mr Fenech underlined the benefits of the income tax cut, saying this would leave more money in people's pockets and help boost economic activity.

People earning up to Lm4,894 would henceforth not pay income tax. The tax bands had been extended so that the 15 per cent band would be extended to Lm8,000. Income up to Lm12,000 would be taxed at not more than 25 per cent.

Mr Fenech said an important feature of these changes was that they did not discriminate on type of earnings, thus eliminating abuse. The government was intent on reducing the tax burden and the distortion between types of work.

Other budget measures, he said, included tax relief for parents sending their children to sports activities, sports and cultural activities.

Stamp duty would be waived when a surviving spouse inherited a residence from his or her partner and it would be reduced for first-time property buyers and when a residence was transferred from parents to their children.

Opposition finance spokesman Charles Mangion said that in extending children's allowance to all children, the government was returning to the position of 1995. Up to 16,000 families earning over Lm10,000 had been deprived of the allowance.

Mr Fenech had implied that the Labour government was to blame for the way the deficit had soared. But the deficit for 1996 was Lm103 million when the Nationalist government in its budget had projected a shortfall of Lm32.8 million. In the last quarter of 1996, two months of which were under Labour, the deficit had increased by only Lm8 million. In 1997 the deficit had risen to Lm119 million, just Lm16 million more under Labour.

Dr Mangion queried what impact the planned large eurobond would have on the debt servicing burden.

The Labour MP said the past few years had seen Malta as one of the most heavily taxed countries in Europe, with VAT having risen to 18 per cent. With this budget the people were getting back just 10 per cent of the taxes they had paid.

If one considered the GDP and Lm310 million in compensation to the working population, the government had raked back almost 63 per cent in taxes. No matter how generous the government was making itself out to be, this was the reality.

There had indeed been sectors that had grown, notably the banking sector which had registered more than Lm100 million in profits in one year, and the very successful on-line gaming sector.

But what the opposition was after was seeing all sectors of society prosper. Indeed economic growth was slower than in other countries which had joined the EU with Malta.

Average earnings had gone from 80 per cent of the European average to the current 75 per cent.

Malta had dropped five places in the World Economic Forum index of competitiveness even though average wages had effectively shrunk. Among the factors for this drop in competitiveness were the results obtained in education, bureaucracy and the increasing perception of corruption.

Dr Mangion said one of the biggest problems plaguing Maltese society was the cost of living.

Even the Prime Minister had admitted that although inflation had been kept to the lowest level in the EU, the government had chosen to award a Lm1.50 weekly cost of living allowance instead of the indicated 50c because of expected inflation next year.

On the energy surcharge, Dr Mangion said it should not be addressed simply because elections were in the offing. Reducing the surcharge would help towards greater purchasing power for families.

He complained that those earning more than Lm7,500 would benefit from more income tax reductions than those earning Lm4,500, who would not benefit.

But it was the latter who felt the weight of the cost of living, surcharge and other burdens. They were the ones who needed more money in hand. The children's allowance would help, but reducing taxation on overtime should be seriously considered.

Dr Mangion called on the government to clear up the disagreement between the government and the Central Bank on how the country's reserves should be utilised after euro adoption. Also, what had been done with the funds from the privatisation of Tug Malta and Oil Tanking?

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.