Gonzi still cautious on income tax promises

An electoral pledge to slash the top income tax rate will be honoured when the government is satisfied it will benefit competitiveness and growth, according to the Prime Minister.

“We have to be honest with the people by implementing our promises but we have to do so responsibly,” Lawrence Gonzi told a press conference on the third year of his Administration at Auberge de Castille in Valletta.

He expressed confidence that the 3.6 per cent economic growth last year would be maintained and the deficit would be reduced to below three per cent. The deficit target required by the Maastricht eurozone criteria, he added, would be met despite the financial consequences of Air Malta’s restructuring.

However, he remained cautious when asked about the income tax pledge: “The pledge to cut income tax is intrinsically linked to the performance of the economy. When we are convinced that it will enhance competitiveness and growth we will implement it.”

The reduction of the top income tax rate to 25 per cent from 35 per cent for those earning less than €60,000 was a central plank in the Nationalist Party’s manifesto for the last election. The PN had also promised it would implement this measure in the first Budget because it believed that cutting taxes encouraged economic growth.

Since then the country has endured a global recession that sent the government’s deficit target off mark, making it difficult to implement a promise that would have cut revenue by some €40 million.

Throughout the press conference, Dr Gonzi compared the situation in Malta with that of other countries. He repeatedly pointed out that, while austerity measures abroad led to reduced budgets for education, health and social services, the opposite was happening in Malta.

Describing health, education, solidarity and the environment as “protagonists” of this legislature, Dr Gonzi said investment in these sectors was only possible because the government had undertaken major reforms that allowed taxes to be redirected to priority areas.

Reforms at the shipyards and the Malta Environment and Planning Authority and a restructuring in the energy sector and public transport would help put the economy and public finances on a sound footing.

An 85-page colour booklet published for the occasion, listing the achievements of the last three years, was a reminder of the PN’s reincarnation as GonziPN in the last election. It contains no less than 31 photos of Dr Gonzi and none of the other ministers. The only exception is a photo showing parliamentary secretary Chris Said and Gozo Minister Giovanna Debono alongside the Prime Minister.

Cabinet members were present with the audience during the press conference.