Families with children will have their income tax cut and receive more in children’s allowance, making them the biggest beneficiaries of the Budget.

A new tax category for parents will alleviate the tax burden, especially for families where both parents work.

€10m

– The cost of the tax cut for parents

A couple with children jointly earning €40,000 and currently paying €4,649 in tax – based on the single rate separate computation – will save €600 a year under the new regime.

The parent computation fills the gap between the advantageous married tax rate and the single tax rate, which is what married individuals pay when both spouses work. No tax will be paid on the first €9,300 under the parent category, which represents an increase of €800 on the non-taxable portion under the single rate.

The measure is intended to encourage more women to enter the workforce by “making the workplace more attractive to parents with children”, according to the Finance Minister.

The new parent tax category will apply to those supporting children up to 18 and not working. The age limit goes up to 21 if the children are in tertiary education.

This reduction is targeted at each parent who has custody of the children and includes married couples, widowers, single parents, separated or divorced individuals who have custody of the children or pay maintenance.

The government will forfeit €10 million as a result of this tax cut, which will benefit 55,000 people. It will come into force next year. But apart from the tax cut, middle and high income families will also benefit from an increase of €100 in children’s allowance.

As from January, parents who only qualify for the basic children’s allowance payment of €250 per child per year will instead receive €350.

The government will also be extending the tax reduction scheme for sports to cultural activities such as drama and ballet lessons.

Under this scheme, parents sending their children for training or lessons at officially recognised sports or cultural organisations will be able to deduct €100 from their taxable income.

Another family-friendly measure mentioned in the Budget, but which will not come into force yet, is an increase in paid maternity leave by four weeks.

The Budget proposes increasing maternity leave by two weeks in 2012 and another two weeks in 2013 with the cost being borne by the government at a flat weekly rate of €160.

However, discussions will have to be held with the social partners at the Malta Council for Economic and Social Development. It is understood that employers have objected to the measure because of the potential impact it may have on small and medium businesses.

Tax savings

* All figures in euros