Gonzi silent over tax cut pledge

Lawrence Gonzi is still refusing to say whether he will renege on his electoral promise to cut income tax by up to 10 per cent, as he launched the government's pre-budget document yesterday.

The Prime Minister told The Sunday Times it would be premature to make any form of commitment now when the price of oil was increasing rapidly.

Dr Gonzi said the issue of taxes had to be seen in the context of the negative international situation.

"When I prepared my notes for this press conference yesterday (Friday) I wrote that the price of oil stood at $145 a barrel. But this morning (yesterday) I had to amend the figure because in one day the price increased by $2, which is an increase you usually see in two months."

The Nationalist Party's electoral programme had pledged to reduce the maximum income tax rate from 35 per cent to 25 per cent and Dr Gonzi had subsequently indicated that the measure would be introduced in the 2009 budget.

But Dr Gonzi said things had changed since then and the price of oil continued to increase at an extraordinary rate - by 45 per cent. He said that during the electoral campaign, the tax cuts had always been directly related to economic growth.

"Indications show that economic growth will be sustained this year but it is still too early to make any commitments or take any decisions. We have to take decisions in the national interest. I am no prophet and I do not know what the situation will be like tomorrow, let alone towards the end of the year. We have our electoral commitments and we will implement them. But we have to do it carefully," he said, while insisting on the objective to achieve a budget surplus by 2010.

Finance Minister Tonio Fenech said the income tax cuts introduced in recent years had little social effect. He said the government would prefer concentrating on measures affecting the vast majority of families rather than taking initiatives which merely assist high earners.

The government's fourth pre-budget document 'Together for a Sustainable Future' does not propose a list of measures, but merely outlines the government's ideas with regard to several aspects, mainly revolving around the government's three main priorities: education, employment and the environment.

The ideas also fall within the government's 2015 vision. Speaking about the proposed change to the car registration tax, Mr Fenech said this will be replaced by a system that is based on the polluter-pays principle and which seeks to address the country's environment and congestion challenges. He said the new tax would be based on emissions and on the age of the vehicle in question.

Dr Gonzi said the government was carrying out a study on the impact of the surcharge on families to serve as a platform for the revision of water and electricity tariffs. Mr Fenech added that this increase was, however, not having an effect on Malta's competitiveness.

The pre-budget document is available on www.budget2009.com.mt.