Budget for fiscal consolidation

The main aim of the government’s Budget for 2011 is that of fiscal consolidation, Finance Minister Tonio Fenech said yesterday when presenting next year’s spending plans.

The government intends to cut the fiscal deficit – which this year is expected to reach 3.9 per cent of GDP – to 2.8 per cent by 2011, mainly through decreased public expenditure. However, a number of indirect taxes were also announced, notably an increase in VAT on tourism accommodation from five to seven per cent.

“We are controlling and, where possible, decreasing public expenditure in a planned and strategic manner. While continuing to maintain the required services and investment, we are ensuring we do not endanger our country’s economic sustainability,” Mr Fenech told Parliament.

The measures to be taken to reduce public spending include a requirement by government departments to improve their efficiency by at least two per cent, an improvement in law enforcement against fraud and tax evasion and a reduction in government arrears by 10 per cent.

Other measures involve employing, wherever possible, only one person for every two who leave the public sector and a review of the government’s procurement methods and use of transport. Furthermore, a system of independent auditing will be set up to evaluate samples of people receiving free medicines to fight abuse in this sector.

The Budget for 2011 amounts to €2.9 billion, of which €340 million will be spent on education and training, €858 million on pensions and social security, €378 million on health and €440 million on projects and capital investments.

In addition to an increased VAT rate on tourist accommodation, excise duty on fuel was increased by 3c per litre, while the tax on cigarettes and tobacco went up by three and four per cent respectively, the tax on local beer increased by 1c per 25cl bottle and the tax on spirits up by 13 per cent.

The Budget also targets people on the minimum wage, who will be eligible for a weekly allowance of €25 to attend training courses by the Employment and Training Corporation.

Self-employed women, who work part time, are being given the option to pay the minimum national insurance contribution or a 15 per tax rate, whichever is most attractive, to encourage them to regularise their position in the labour market.

The tax credit scheme for SMEs, introduced in this year’s Budget, has been extended to next year and a €1 million fund has been set up to help small businesses export their products and services to new markets. Businesses paying their VAT dues online will have their payment deadline extended by seven days while anyone who declares a turnover of under €7,000 need not register with the VAT Department.

The Malta Tourism Authority’s budget has been increased by €4 million to €35 million, an additional €10 million has been set aside to help hotels improve their product and a €3 million fund has been set up for the training of middle management tourism operators.

A scheme will be introduced whereby anyone scrapping an old car will be entitled to a €2,000 subsidy when buying a new small car.

The education budget has been increased by €32 million and two childcare centres are to be built in Sta Venera and Floriana. The income on which parents of children in a private school are entitled to a tax rebate has been increased from €1,000 to €1,200 for primary schools or kindergartens and from €1,400 to €1,600 in secondary schools. The VAT paid by private schools for new buildings will be refunded.

The health budget has also increased, by €12 million, and €14 million have been allocated for the Oncology Centre at Mater Dei Hospital. A sum of €2.3 million has been set aside for increased hospital operations.

The supplementary allowance for low income earners has been increased to a maximum of €4.57 per week for a single person and €8.13 per week for a married couple.

Local councils will receive €32 million more from the central government.

The government announced a €1.16 per week cost of living increase, which will also be given in full to pensioners. Pensioners receiving a service pension will have another €200 deducted from the calculation of their government pension.