Income tax cut still a way off

The country is “on the right track and when the time comes” the government will implement the electoral pledge to cut the top income tax rate, the Prime Minister said yesterday.

Lawrence Gonzi was addressing a press conference with Finance Minister Tonio Fenech at the end of the third Budget speech after the election that failed to deliver the pledge to cut the maximum income tax rate to 25 per cent from 35 per cent.

“We will arrive there gradually. But we are responsible in the way we run the country and it is a big satisfaction for me to stand here announcing that we have increased expenditure in key areas while other countries are announcing massive cuts,” Dr Gonzi said when asked what economic and financial conditions would have to be met for the pledge to be honoured.

The government is on the right track, he added, but the pledge had to be viewed within the context of another income tax cut for mothers returning to work after giving birth.

“We not only reduced income tax but removed it completely for mothers returning to work after giving birth. This comes at a cost of €5.5 million,” Dr Gonzi said.

He defended what he described as the Budget’s social dimension when asked whether families would be better off with a wage increase of €1.16 and no energy benefit despite the high water and electricity rates that will persist next year.

“These are choices we have to make. We chose to invest in schools, health, increasing the ceiling for the supplementary allowance and the environment. This also does justice to families,” Dr Gonzi said, insisting the cost of living adjustment mechanism was transparent and agreed to by all social partners.

Throughout the press conference the Prime Minister made it a point to underline the bad situation in other European countries where governments had to resort to massive expenditure cuts to lower the deficit and keep debt in check.

“We are aiming to consolidate public finances and if next year the deficit is below three per cent it would send the right signals to investors that we mean business,” Dr Gonzi said, adding that, more importantly, this was being achieved without compromising on education, health and other social services.

When asked about the VAT increase on hotel accommodation, the Prime Minister pointed out that a Budget measure to introduce a bed tax two years ago was never implemented.

“The government has invested in tourism and this led to record numbers this year,” he said.