The Finance Minister has put paid to any hopes of an income tax cut in the next budget insisting it was "not possible" in the circumstances.
In a situation where there is no significant economic growth next year, the government needed to ensure stability in its revenue, Tonio Fenech said.
"With revenue for this year expected to be €80 million short of projections I will not be taking any 'gamblish' decisions," he said.
Opposition Leader Joseph Muscat on Sunday said he expected the government to fulfil its electoral pledge to cut the top income tax rate from 35 to 25 per cent in a bid to stimulate the economy by putting more money in people's pockets.
But Mr Fenech disputed this line of reasoning during a business breakfast organised by Di-ve.com yesterday. "The biggest stimulus for the economy does not necessarily come from cutting taxes but depends on the recovery in other countries," he said.
Mr Fenech was careful to avoid the use of the word ħofra (hole), suggested by the interviewer, with reference to the gaping deficit that topped €300 million in July.
"We need to maintain a reasonable deficit position and so we have to have a measure of restraint but unemployment is a major concern and I expect to spend money to prevent job losses," he said, insisting that keeping the deficit to the three per cent mark was not the government's overriding priority.
The minister defended the cost of living adjustment mechanism once again insisting it brought industrial peace and helped Malta retain its competitiveness.
Nonetheless, Dr Muscat insisted last night that the decision not to cut income taxes was unfair for honest people who had always done their duty.
Speaking during a meeting with Forum, a grouping of 11 trade unions, Dr Muscat said it was not fair that honest people who always paid their taxes were being denied a cut in income tax while those involved in the VAT scandal were given light sentences and those who failed to pay tax over the past years were being offered an amnesty.
Dr Muscat said that in view of the government's declaration that the country had now overcome its problems, the Labour Party was expecting a good budget. "If the worst is over, there are no excuses why the budget should not be a good one," he said.
In a statement last night, the ministry said the government would be taking all the measures available to it at law to collect all the money that was made during the VAT scam case. During the business breakfast, Mr Fenech ruled out the suggestion made by the Malta Employers' Association for the government to fork out half of the expected increase for employees in the private sector, saying this would cost public coffers €12 million. "I do not have many €12 million available and, if I had, I would use it to retain jobs by directly focusing on companies that require help," he said.
The minister hit out harshly at STMicroelectronics when asked why the assistance package with the company had not yet been finalised.
Implying that all the company wanted was government subsidies, Mr Fenech said he was not prepared "to close a deal simply to close a deal". "It takes two to tango and I will not create a shipyard out of ST," he said, dispelling the widespread impression that the multinational chipmaker was responsible for 15 per cent of Malta's GDP.
ST was a significant contributor to exports and imports, he said, but its main contribution to the country was its payroll and the multiplier effect to other companies that served it. "Public coffers gain nothing from ST since the company does not pay tax," he said.
When asked by a pensioner whether the government would be considering raising pensions to the level of 60 per cent of the median wage as recommended by the EU, Mr Fenech said the time was not right.
"We cannot ignore social cohesion but we first have to get the economy moving again to be able to afford social assistance. Talking of increasing pensions to 60 per cent of the median wage at this point in time was unlikely when some are even questioning whether a COLA increase is affordable," he said.
ksansone@timesofmalta.com