Although fiscal consolidation was an important aspect of the 2012 Budget presented in Parliament by Finance Minister Tonio Fenech on Monday – next year’s deficit is targeted at 2.3 per cent of GDP – the government introduced significant tax cuts for an important segment of the workforce: working parents, as well as fiscal incentives for parents of children at private schools and increases in children’s allowance. In addition, pensioners aged 80 and over living in their homes will be entitled to a €300 annual grant.
The tax cuts are aimed at making the labour market more attractive for parents
The main characteristic of the 2012 Budget is in fact that it is particularly family-friendly, and that it targets middle class and lower middle class voters, a key sector within the traditional Nationalist Party electoral bloc but also an important segment of the economy.
The highlight of the 2012 Budget is without doubt the creation of a new tax category called a “parent computation” through which working parents will be able to save up to €420 each a year in tax. From next year, therefore, there will be a third income tax computation, in addition to the “single / separate” and “married” computations.
This new tax category will be eligible for working parents supporting children who do not work up to the age of 18. If the children are still studying at tertiary level, this age limit is extended to 21.
Mr Fenech said that these tax cuts, which will cost €10 million, were aimed at making the labour market more attractive for parents. Besides married couples with children this income tax reduction will also benefit widows and widowers with children, single parents and separated or divorced persons who have custody of the children or pay maintenance.
The government is estimating that the economy will grow by 2.3 per cent in 2011, and is generally optimistic about next year’s figures, despite the crisis in the eurozone, which Mr Fenech said nobody could ignore.
He told Parliament: “Everyone is aware of the events taking place around us. Several international agencies, including the European Commission, are revising downwards the forecast for economic growth in Europe. The critical state of Greece; a very worrying situation in Italy; Spain, Portugal, Ireland, Britain and France are adopting austerity measures which are leaving an impact on their people and the European economy.
“The European Union is working relentlessly to control the negative impact of the financial crisis. It is in the interest of us all to overcome this crisis because that is the only way that the real economy, on which our livelihood depends, can continue to function at a good pace and create prosperity and employment.”
Mr Fenech said the government’s strategy was to safeguard employment, incentivise investment, develop the economy, invest strongly in education, keep the tax burden low, fight inflation, reduce bureaucracy, strengthen pensions and social benefits, support the neediest families and continue to invest in the development of health services.
“This strategy is bearing fruit, because we believe that economic policy and social policy are inextricably linked even in times of crisis,” he said.
Mr Fenech said the government was committed to lowering the country’s deficit to €181.7 million by the end of this year, or 2.8 per cent GDP while the 2012 deficit was forecast at 2.3 per cent of GDP.
“This should lead to Malta’s exit from the European Union’s excessive deficit procedure, will send an important signal of reassurance to potential investors, will generate employment and provide the fiscal space needed in order to intervene as needed in the economy throughout 2012,” he said.
The country’s public debt for 2011 is projected to be 70.15 per cent of GDP, up from the 68.96 per cent of GDP in 2010, while the 2012 public debt is estimated at 68.91 per cent.
Among the fiscal measures introduced in the 2012 Budget were allowing pensioners working part time with the government to pay a 15 per cent income tax rate and the extension of the deadline for the payment of 15 per cent part time tax from February 15 to June 30, to allow more time for the settlement of tax payments. A time-limited scheme for the introduction of VAT arrears is also to be introduced.
The duty on fuel for the bunkering of ships outside territorial waters is to increase to €5 per tonne while the duty on cement will increase by €3 per tonne. The minimum excise duty on cigarettes will increase by 5.8 per cent on each packet of 20 cigarettes.
The government increased its amount spent on helping industry and attracting foreign direct investment to €14.2 million. Fiscal incentives worth €3 million over three years are to be given to firms consuming more than 2GWhr of electricity per year which invest in energy-saving measures and in clean energy generation. A total of €16.7 million has been allocated for upgrading the Bulebel and Hal Far industrial estates and the service charge for industrial estates has been lowered to €3.50 per square meter. Microinvest, which gives a tax credit on 40 per cent of new investment and new jobs, is to be extended for another year. A new MicroGuarantee Scheme worth €20 million is to be introduced through which the government will guarantee loans for viable projects by businesses.
The Malta Tourism Authority budget has been increased by €1 million to €36 million and €20 million has been allocated for the restructuring of Air Malta in 2012.
A Malta Games Fund is to be set up to strengthen the gaming industry through an investment of €150,000. In order to attract more experts in digital games to Malta, the 15 per cent income tax scheme will be extended to international professionals in this sector, such as game directors and game designers.
The tax credit scheme for women returning to the labour market is being extended for another year and €1.3 million will be spent on three new child care centres. The government is to propose – within the MCESD – an increase in the length of maternity leave by two weeks in 20102 and another two weeks in 2013, with the cost being borne by the government in the form of an allowance of €160 per week.
The registration tax on old Euro 1 to Euro 3 cars will increase to discourage their use and the car scrappage scheme will be extended for a further 3,000 cars. A scheme will be introduced to encourage the restoration of buildings by individuals and companies. This will consist of a final withholding tax of 10 per cent of income from rent for residential property and 15 per cent for commercial premises. For sales, a final withholding tax of 10 per cent or a tax credit of five per cent on chargeable income from that transaction. Four million euros have been allocated for projects in connection with Eco-Gozo Vision.
The education budget has been increased to €23 million and €45.2 million has been allocated in support of Church schools. Parents of children attending private schools will have their tax credits extended as follows: From €1,200 to €1,300 in day care, reception and kindergarten; From €1,200 to €1,600 at primary level; From €1,600 to €2,300 mat secondary level. A €1 million fund has been set up to support private schools in the areas of IT, children’s special needs, science, sports and teachers’ professional development. In the health sector colorectal screening is to be introduced and further work will be done on the Oncology Centre.
The social sector has been allocated a budget of €1,020 million, of which €750.4 million go to social benefits. The minimum rate for children’s allowance has been increased from €250 to €350 for every child, a grant of €300 per year will be given to pensioners over 80 who live independently in their own home and VAT on private nursing and home help services offered by the private sector to pensioners will be removed.
In other measures next year’s weekly cost of living increase is to be €4.66 and the €35 TV licence has been abolished.
Highlights of 2012 Budget
• Tax cuts for working parents.
• Weekly cost of living increase of €4.66.
• Measures to help industry.
• Scheme to reduce accumulated VAT penalties and interest.
• Increased fiscal incentives for parents of children in private schools.
• €300 annual grant to pensioners living at home.
• Increase in children’s allowance.
• Maternity leave extended.
• Loan guarantees for businesses.
• €1 million fund for private schools.
• TV licences abolished.
• Car scrappage scheme extended.
• Increased registration tax for Euro 1 to Euro 3 cars.
• Excise duty on cigarettes, cement and oil bunkering increased.
• VAT on private nursing services at home abolished.
• Fiscal incentives for restoration of private properties.
• Amendments to part time work rules.
• Income tax incentives to attract high quality labour to Malta.