Government to revise diesel vehicles' circulation tax

The government is adjusting the new vehicle circulation tax announced in the budget, particularly in the case of diesel family cars which, in terms of the original proposal, would have ended up being taxed as much as luxury cars.

Speaking in Parliament during the budget debate, Prime Minister Lawrence Gonzi said yesterday the new registration tax and the circulation tax, replacing the vehicle licence, was to encourage the purchase of new, smaller and environmental-friendly cars.

The registration costs of new petrol 1300cc cars would be almost half of what they were before. The saving on registration for petrol cars ranging between 1500-1700cc would be almost 30 per cent less - and new cars would cost some €2,300 less.

The Prime Minister said the money would be recovered from the new circulation tax, but 1300cc petrol family cars which were six years old would see licence costs increase by just €5, which was not sky high. Petrol cars ranging between 1300-1500cc which were also six years old would go up by just €6.

It was true that for some categories there would be significant increases, particularly big diesel cars. But one either had the courage to tackle the environment or acted like jelly, he said.

However, the government had decided to review the new licence costs for certain diesel cars, bought some 10 to15 years ago by 'ordinary' families who had sought to save on fuel at a time when diesel was substantially cheaper than petrol.

In this way, such families would not end up paying as much as those who bought large luxury diesel cars.

The government had also received valid complaints by importers of second-hand cars, currently in stock, and would, therefore, introduce transitory provisions for the new licences.

At the beginning of his speech, Dr Gonzi expressed his faith in the country and thanked all those who worked for Malta's success throughout the four years' membership of the EU. Malta had passed its financial examination with flying colours and this led to the country being one of the first of the new EU-member states which introduced the euro. Malta had passed through this radical change without any trouble, even if it the euro was introduced when the country was gearing up for a general election.

Malta had managed to exploit its opportunities. It put its finances on a sound footing and attracted investment, thus consolidating its economy for the current bleak period. The successes achieved throughout the four-year period after May 1, 2004 would not have been possible were it not for the cooperation shown by all entities.

The government had negotiated a number of collective agreements with the unions representing public service employees even at times it was difficult to arrive at an agreement.

The government and the unions were now not in agreement on the impact of the utility bills. He insisted the decisions on the water and electricity tariffs were taken with an eye on safeguarding jobs and competitiveness.

He was sure that the trade unions knew of the impact which the energy issue could have on places of work and competitiveness. The government, therefore, had taken decisions which ensured that the country could best employ its resources where they could be most productive.

He could never accept requests which, in the long run, would result in more harm than good were these to be implemented. However, he was confident that a solution to the problem would be found.

Dr Gonzi said that late last month he had met the employers' organisations, representing thousands of jobs, to discuss the impact the new utility rates would have on Malta's competitiveness, both now and in the future.

Together they had sought a difficult compromise based on the principles that everybody had to pay for his own consumption; that the country needed to invest to have the energy it needed; that it needed to shift to alternative energy; and that it should not have in place mechanisms which encouraged waste.

Another meeting was held on October 27 and a compromise was reached in the context of present-day realities and jobs. As a result, millions of euros which used to go on subsidies on energy could now be deployed in other areas, including alternative energy and towards protecting the environment.

Subsidies were counter-productive as shown by Sea Malta and the shipyards. They do not help the country make the necessary changes.

Dr Gonzi said he had no right to use taxpayers' money on a system which tolerated waste. That was dangerous, the more so now given the international financial situation and national priorities.

"We need to look at realities straight in the eye and change what needs to be changed. Let us help those who need help, but let us stop waste, let us improve efficiency and introduce more incentives for alternative energy."

The measures taken both in this budget and in previous ones would help generate more efficiency and spur people to use alternative energy systems.

The Prime Minister said this was the whole thrust of this budget. It was requesting a culture change of the people whose mentality was anachronistic and dangerous. The country must curb its electricity consumption because the situation had now become untenable.

The year started with an explosion in the price of crude oil and cereals. It ended with the credit crunch which developed into a financial tsunami and brought down not only a number of banks like Lehman Brothers but also nations' economies like Finland. The world was now passing through a negative attitude and sound economies were suffering. Malta was fortunate enough to have invested in the past and surmounted the situation.

The introduction of the euro and the financial regulatory machinery over banks' activities helped Malta shield itself from this crisis. But Malta had no guarantee of a rosy future. The only guarantee was if the government continued to act on the three pillars of responsibility, sustainability and solidarity on which the budget was based.

Referring to the Leader of the Opposition's budget criticism on Monday, Dr Gonzi appreciated the fact that Dr Muscat appealed for courage. However, although there was common ground between him and Dr Muscat on the use of the word, it meant different things to the two of them.

To him, Dr Gonzi said, courage had to be built on a genuine conviction in the competence of the people and their ability to overcome challenges even at difficult times.

Because he believed in the people he had followed a policy which bore results. Reforms would continue with the rent laws, energy, Mepa and public transport, among others.

But Dr Muscat wanted the people to have courage to avoid challenges, problems and the unavoidable. This was yet another bad piece of advice being given by Labour, one in a list of historic bad advice given.

Dr Gonzi said courage was needed to win challenges. But in his speech, the leader of the opposition seemed to be trying to find an excuse as to why Labour had lost the election. And he made "a convenient but morally irresponsible choice" when he chose to hide reality.

Dr Muscat also made a number of proposals - some good, others irresponsible: he accused the government of employing 600 people before the election and of spending €70 million more than last year in first seven months of this year.

The Prime Minister said that since 2000, the number of civil service employees had been reduced by 4,000 - one of the reasons why the country's finances were put on a sound foundation.

It was true that people were employed between October 2007 and April 2008 but these were 324 newly-graduated teachers, 224 health department employees following the move to Mater Dei (where pressure to employ even more people remained), and 195 in the police force.

The Prime Minister insisted that no election was won or lost because of this. As for the €70 million more spent in the first seven months of this year, Dr Gonzi pointed out that the additional children's allowance given in the last budget measure started being paid this year.

Moreover, the government spent €30 million more on health (including €11 million on medicines), €22 million more on energy benefits, €5 million more in Malta's contribution to the EU, €10 million more in assistance to farmers, on food and waste treatment; and €5 million more on education. The government invested in what the people needed most.

Returning to the budget, he said this was planned to purposely address the international situation and it only made sense in such a situation. Had the situation not been what it was, the difficult decisions taken could have been avoided.

It would have been easier for the government to do as Dr Muscat did and ignore the situation without telling the people what reality really was. But sense of responsibility demanded otherwise. He had the duty to warn the people of the dangers of what was happening so that they could understand the solutions being proposed giving them the opportunity to rise to the occasion.

Dr Gonzi said that Dr Muscat had advised the government it had been too early to join the Eurozone. However, it turned out that Malta had joined at the most opportune time.

Had the government not taken action about the shipyards, what happened to Poland would have happened to Malta putting the livelihood of 1,700 workers at risk. The EU last week ruled that Poland's aid to the shipyards was unlawful and Malta would have faced a similar situation.

Had Malta not joined the EU way back in 2004, the Prime Minister said, the situation it would be facing today would not be a pleasant one.

Last month, the Danish Prime Minister admitted that had his country not joined the Eurozone, it would not have ensured economic stability - and this coming from a country which did not have energy problems, like Malta.

The Irish Prime Minister, another country which had benefited from EU membership, recently said that the problems Iceland was facing, being on its own, made it clear that being a member was preferable to being on the outskirts. This was something the Maltese government had been saying for a long time. The opposition employed scare-mongering tactics when it came to new ideas like EU membership and adopting the euro, but in retrospect one could see how the country had prospered.

This showed the government's credibility; it was apparent that it did not build around science fiction. Anyone looking at the current situation could see that there were very real problems, a storm even.

Dr Gonzi said that not even the former leader of the opposition had treated the budget as Dr Muscat did. Alfred Sant would give an economic analysis and did not escape reality and came up with alternatives.

Just days before the opposition leader's speech last Monday, the Financial Times quoted the EU Commissioner Joachim Almunya saying policy makers were facing exceptional uncertainties, in a crisis that no one, not the IMF or the EU Commission, had experienced before. That same day the Commissioner also said that the recovery was expected to be slow one, even taking until 2010.

US President-elect Barack Obama had admitted that the global crisis would be his priority, and he would be dealing with it. President Sarkozy of France, the current president of the EU, called a meeting of Eurozone Prime Ministers to discuss the worst financial crisis since 1930. British Prime Minister Gordon Brown had admitted that the problem required global solutions. Yet Dr Muscat persisted in ignoring the issue.

The GWU was forced to agree to measures taken by the industry in light of the global crisis. What happened on Wall Street affected workers in Malta.

Why did Dr Muscat choose to ignore all this? He asked, adding that the government looked to the future, and responded to challenges, for sustainability.

The Prime Minister said that one criteria used by the government in drafting the budget was to give major fiscal stimulus rather than cheque rebates. This advice was even advocated by international economic experts.

Dr Gonzi criticised Dr Muscat for calling on the government to withdraw the revised tariffs. He said Dr Muscat did not make any calculation on the financial impact of this measure. He also spoke on international fuel prices and said that the formula adopted by the government allowed for adjustments to be made. He said that Malta buys its oil provisions already refined. This means that prices may be much higher at a time when the price of crude oil falls.

Insisting that one should pay according to consumption, the Prime Minister said that the government's main priority was to safeguard employment and give incentives for a cultural change towards using alternative energy and avoid waste.

In 80 per cent of cases, the increase in the utility tariffs per person would amount to €0.75, from €0.35 to €1.45. This increase could be halved if one used energy-saving light bulbs. These would greatly reduce the impact of the new tariffs.

Dr Gonzi said that the government was to invest €130m on the wind farm project, assuring Dr Muscat that environmental and scientific studies were under way and would be ready before issuing an international tender.

The Prime Minister then gave details on the energy benefit scheme and categorised the 30,000 families which would benefit from it (see table).

The government made its calculations: on a surcharge basis this would have had to increase between 125 and 135 per cent. The opposition calculated family expenditure in a different way from the government.

He said that it was true that fuel prices went down in the UK between July and October but they were still higher than in Malta. In October consumers in the UK bought petrol at €1.33c per litre when in Malta the price was fixed at €1.197c per litre. He added that the same applies to price of diesel, adding that in the UK consumers pay a higher government tax on fuel than in Malta.

The Prime Minister insisted that the government was striving to change the maltese mentality regarding the environment calling on people to buy new, small cars which are environmental-friendly.

With regards to EU funds, he said Malta had performed well. Malta's absorption rate on pre-accession funds amounted to 82 per cent. Malta had performed much better than the other nine new EU member states. These funds were used on major infrastructural, environmental and education projects, on training courses for workers and on financial aid to farmers and fishermen among others.

He also said that Malta's allotment up to 2013 amounted to €855 million; 61 projects costing €235 million had been approved by the EU and Malta would receive these funds once the projects were completed.

An analysis on the economic growth achieved by Malta during the last four years showed that there was a very good performance on GDP, employment and public spending when compared to other countries.

It was the government's strategy to put money in people's pockets by revising income tax bands for the third consecutive year, a measure that was costing the government €12 million in 2009 alone. Over a three-year period the government would have put €152 million in people's pockets. He added that this measure was taken to give an incentive to people to work more and create economic wealth.

Turning to education, Dr Gonzi said that €13 million more would be spent on new schools and another €16 million would be spent on networking. He added that the government gave priority to schools and youth.

He also dealt with the need to achieve a cultural change regarding the environment adding that the government preferred to give incentives on helping people to use photovoltaic and solar heater systems, on energy saving lighting bulbs and other alternative energy sources rather than retain subsidies to make good for excessive energy consumption.

The government also preferred to use its resources for a better health sector and increase social welfare.

He said Malta was living through a particular phase of its history. He called for unity and said the Maltese should not be divided on petty things. He argued that Malta would face future challenges and used all possible opportunities to reach its 2015 vision.

Concluding, Dr Gonzi called on the opposition to help the government instil a new culture so that the country would curb the energy consumption problem and go for alternative energy sources.

The Finance Minister's motion was approved by 34 votes in favour and 31 against. The House this morning starts debating the votes of the different ministries, starting with those of the Ministry of Resources and Rural Affairs.