Taxation is at the heart of the Budget for 2012 presented by the Minister of Finance. Defined to include revenue from social security contributions, it will finance the larger part of government expenditure this year, and is projected as by far the major support of the recurrent and capital proposals for 2012.
The one new tax measure announced in the Budget for 2012, the new parental threshold, is an odd story- Lino Spiteri
The revised revenue estimates for 2011 included in the abstract of revenue in the 2012 Financial Estimates say that the income tax take will total €821,400,000 by the end of December. Revision and all, that will be exactly the same amount, to the nearest euro, that the Finance Minister said would be collected during 2011 when he presented the Estimate a year ago.
That is funny, but not ha-ha. It suggests that the minister was the most successful forecaster in global fiscal history. Seen objectively, it exposes the minister’s projection to lack of credibility. It thereby raises doubts about the validity of the forecasts for 2012.
The ridiculous assumption of perfect foresight is repeated in the social security contributions totals for 2011. The amount included by the Finance Minister a year ago in the Budget for this year and approved by Parliament was €586,175,000. Incredible but true, the revised figure included in the 2012 abstract of revenue is exactly the same.
With due respect to those who work so hard to prepare the Financial Estimates for the minister to base his fiscal policy on, that is nonsense. At least, the same approach is not adopted under the other three tax revenue heads, customs and excise duties, licences, taxes and fines, and value added tax.
Of greater relevance is the Finance Minister’s silence on the composition and sustainability of the two main tax revenue votes, income tax and social security. Within the Budget Speech he referred to a clamp down on moonlighters who used to receive social assistance undeservedly. He implied that the justified squeeze represented a saving of €21 million annually. Is that saving reflected in the social security contributions forecast for 2012, which is moreover said to be rising to €632,000,000?
The projected increase is in part due to the Finance Minister’s assumption that there will be nominal economic growth (combining inflation and real expansion) of close to five per cent. May there be real growth, notwithstanding the forecast accelerated slowdown in the eurozone and beyond. Even assuming that, is revenue from further clampdowns on moonlighting sustainable? The increase in the contribution by those born since 1962, which will yield additional revenue, is sustainable. One-offs from tighter control are something else.
The question is clearer in regard to the income-tax take. That has been boosted by revenue from the expanded financial and gaming sectors, which continue to benefit from bi-partisan support for the tax structure and serious regulation underpinning them. One hopes that the sector will remain in being, and therefore revenue from it, albeit fluctuating in line with turbulence in the global economy, will be sustainable. But what about revenue from the tax amnesty?
That is continuing, but is the take from it sustainable? It is included somewhere within the estimated €840,000,000 to be collected from income tax during 2012, an increase of €19 million over the projected outcome in 2011. The tax-take should be higher, even at a stable level of employment, since fiscal drag will again allow the minister to raise substantial revenue from the €4.66 weekly statutory increase, once for the fourth year running he will not be adjusting the tax-exempt portions.
Within that, amnesty revenue will have to peter out eventually, but no analysis of the factor was made by the minister, confirming that an unhealthy dose of short-termism underlies the revenue projections.
The one new tax measure announced in the Budget for 2012, the new parental threshold, is an odd story. It is both discriminatory as well as an attack on choice. It is discriminatory in that the Finance Minister completely ignored equity, benefiting one restricted socio-economic class – married couples where both spouses are gainfully occupied. The rest of the working population is completely ignored.
Not only non-taxpayers are left by the wayside. They are joined there by families where only one spouse is gainfully occupied.
Thereby, the minister will also be discouraging choice. There still are thousands of couples who make a conscious decision that only one of the spouses will go out to work. They will be punished for their choice – they will not be eligible for the new tax-exempt threshold to be introduced from next year.
Income tax has been controversial since its inception over 60 years ago, when it was attacked both by conservatives and Churchmen.
It was turned into a political ball in the early 1970s, with an electoral promise to abolish the tax completely. Income tax was also used on the eve of the 2008 general election, with another promise to radically slash the top rate.
Political games will be played. Nevertheless, it is a mistake to extend the game into the heart of the serious role that sustainable and fair taxation has to play in fiscal policy at the service of the country, and not of politics.