The Budget presented by Finance Minister Tonio Fenech on Monday was aimed at boosting economic growth, investment and job creation through increased support for industry and small enterprises.
Among the measures announced by Mr Fenech were a microfinance scheme and tax credits for small businesses as well as additional funds for industry, research and innovation, the upgrading of a number of industrial zones and funds for a Biotechnology Park.
Despite intense lobbying from the MHRA, however, the government made it clear that it will not cut the 18 per cent VAT rate on restaurants. A Ministry of Finance report concluded that such a decrease would only contribute towards a 0.2 per cent growth rate in 2010 and the treasury would lose €29 million.
The envisaged cuts in government expenditure hardly materialised, with the probable exception of the announcement that the government is to stop funding Mepa, and that the Authority is to revise its tariff structure soon. In fact, the total 2010 budget for health, education, pensions and social services - where one would expect cuts to take place - increased to €2,484,142,000 compared to €2,421,492,000 spent this year.
Mr Fenech announced that the deficit for next year is forecast to reach 3.93 per cent of GDP, which means the government has rejected a European Commission request to regularise its deficit according to the Maastricht criteria by the end of next year.
The Budget was on the whole cautiously welcomed by the private sector as well as Malta's second largest union, the UĦM, while the General Workers' Union called it a "moderate" Budget.
The Chamber of Commerce and Industry described the Budget as one that managed to strike a balance between the country's needs and realities and praised the government's focus on stimulating investment, supporting businesses and job creation.
The Chamber, however, expressed its disappointment at the €5.82 weekly cost-of-living adjustment, the fact that no measures aimed at labour market flexibility were announced and the uncertainty that still surrounded the utility tariffs to be introduced in January. "It would have been better had the matter been clarified before January," Chamber director-general Kevin Borg said.
Malta Employers Association director-general Joseph Farrugia said the Budget was "good" but questioned whether the €10 million in utility rates subsidies should have been a priority. "Helping industry is more important at this stage," he said.
Mr Farrugia pointed out, referring to next year's deficit forecast of 3.93 per cent, that due to the economic situation, the country could perhaps afford a slightly higher deficit "as long as it is reversible".
GRTU director-general Vince Farrugia gave the Budget "seven out of 10" and welcomed the increased help for small business through microfinance and tax credits. Mr Farrugia also welcomed the investment in capital projects.
UĦM secretary general Gejtu Vella described the Budget as one of "support, solidarity and economic stimulus" and praised the government's €5.82 cost-of-living adjustment as well as the one-off compensation for next January's increased utility rates.
Tony Zarb, the General Workers' Union secretary general, said the union would be vigilant in ensuring that the government implemented what it pledged. He welcomed the government's measures to safeguard jobs but expressed his disappointment at the lack of tax cuts in the Budget.
Main Budget highlights
• The Budget deficit for 2009 is expected to reach 3.79 per cent of GDP (€217.6 million), while the figure for 2010 is estimated to be 3.93 per cent of GDP (€233.8 million).
• The economy is expected to contract by -2 per cent in 2009 and grow by 1.1 per cent in 2010.
• The weekly cost of living adjustment for 2010 is €5.82. Pensioners will get the full increase.
• No refund on overpaid income tax / VAT will be paid to taxpayers if there are outstanding VAT returns or income tax returns.
• Tax benefits for working women returning to the labour market will also be extended to self-employed mothers up to a maximum credit of €5,000 per year.
• The opt out of the 12 per cent final withholding tax on immovable property transfers will be extended from five to seven years for transfers in 2010 and 2011.
• A deduction in the taxable income of €1,000 will be provided for children older than three who attend childcare centres in summer.
• The Inland Revenue, VAT and Customs Departments are to merge.
• A Taxpayers' Charter will be established.
• Registration and licence fees for small boats will be reduced.
• Excise duty on cigarettes and tobacco is to be increased by €0.15.
• The commercial vehicle registration tax system is to be revised.
• A microfinance scheme worth €10 million will be set up to help small businesses obtain loans of up to €25,000.
• SMEs that employ up to 10 employees will be entitled to a 40 per cent tax credit (60 per cent if in Gozo) if they invest in new technology or create new jobs.
• Other help for industry includes €8.5 million in EU funds for industry, a reserve fund of €2.5 million as assistance to industry, an upgrading investment of €16 million for industrial zones, increased funding for Malta Enterprise, more money for research and innovation and an investment of €20 million for the Biotechnology Park in San Gwann.
• The €16.31 levy on credit cards is to be removed.
• The Malta Tourism Authority will be allocated €31 million, including a special package of €5 million to address the international crisis.
• €10 million have been allocated to compensate for the increase in the price of energy from next year.
• Eco-Gozo has been allocated €25 million, over a three-year period.
• €400 million have been earmarked for capital projects and €80 million for the embellishment of attractive zones.
• A Malta Authority for Fair Trade will be set up and the Office of Fair Competition reformed.
• The government has allocated €4 million to deal with the problem of hospital waiting lists.
• New schemes are to be introduced related to job creation including measures which give experience-related opportunities to the unemployed.
• Measures will be introduced to assist disabled people at the workplace.
• Help will be given with the payment of childcare costs to mothers seeking to join training programmes.
• Financial assistance will be given to employers who incur cost in connection with childcare facilities.
• Benefits for children in residential homes will be increased from €40 to €70 per week.
• A 50 per cent refund will be given for the cost of photovoltaic cells, up to a maximum of €3,000.