PM unveils economic stimulus package

Prime Minister Lawrence Gonzi yesterday pledged that a new Nationalist government would widen all income tax bands and reduce the maximum rate of income tax from 35 to 25 per cent for those earning under €60,000 (Lm25,758).

The measures form part of an economic stimulus package that would also give working mothers a one-year tax break for each child.

The government would ensure that overtime payment rates remain unchanged and would fight against the imposition of a maximum weekly number of overtime hours.

Prime Minister Lawrence Gonzi was speaking at the Upper Barrakka gardens, in Valletta, in the first of a series of press briefings leading up to the March 8 general election.

In the last two budgets, the government has already cut income tax and given other tax incentives. Dr Gonzi described the new fiscal package as the hors d'oeuvre of the Nationalist Party's electoral manifesto.

Explaining the reasoning behind the measures, he said all tax bands would be widened by raising the ceilings of the amounts at which tax was payable at 15 and 25 per cent. This would reduce the tax burden and leave more money in people's pockets.

The second taxation measure - to cut the maximum rate of income tax by 10 per cent for those who earn under €60,000 - would benefit a wide range of families but was particularly aimed at the owners of small businesses and the self employed.

"We estimate that with this incentive we will boost the economy so that, by the second year of its implementation, the government would be pocketing more than what it would have pocketed had the measure not been implemented," he said.

The aim of the tax measures was to "stimulate more economic activity, attract investment and reward work. We are telling the worker: Work more and pay less tax".

The third measure was aimed at encouraging women to return to work by entitling all working mothers to a year exempt from income tax per child. Women who go back to work after five years already benefit from a tax-free year. The new measure meant that mothers did not have to leave their job, or stay out of work for five years, to benefit from the tax break, he said.

The Nationalist Party is also committing itself to ensure that the overtime rate will remain unchanged (an hour-and-a-half pay for each hour worked) unlike the Labour Party which, Dr Gonzi said, wanted overtime to be paid at the normal hourly rate.

It would still be up to individual employees whether to work overtime or not and the PN was committed to fighting the imposition of maximum hours per week.

EU member states have long been discussing controversial proposals that would effectively limit the number of hours worked each week to 48, under the Working Time Directive. Malta is one of the countries making a stand against the idea.

Before unveiling the package, Dr Gonzi said the PN's priority was to continue improving the quality of lives of all members of society.

Malta, he said, was enjoying a rate of economic growth of about four per cent and had managed to reduce the deficit to 1.6 per cent, down from about 10 per cent over four years. The rate of foreign investment had reached record levels and unemployment was below the EU average. The whole world was going through a time of economic uncertainty and this would inevitably be felt in Malta. The rising prices of oil and cereals were among the challenges that had to be faced.

"For this reason, the country needs a government that is capable of offering solutions to these situations as we have done in the past three years. Not fictitious solutions however; solutions that really help our county face the challenges ahead. The answer to these challenges cannot lie with a government whose policies bring about uncertainty and experimentation or threaten financial and economic stability because what it promises is not sustainable.

"It can't be a government that re-opens the EU accession package. In other words, the answer to the challenges faced by our country cannot be the Labour Party," Dr Gonzi said.

Asked how the government was in a position to keep cutting income tax, Dr Gonzi said that in the last two budgets the government had managed to do so because, as a result of EU accession, Malta's economy had grown. "Over the past two years we reduced tax, leaving more money in people's pockets and stimulating the economy," he said.