The Government is expected to honour its electoral pledge to reduce the maximum income tax rate, but will spread out the cut over two to three years to “keep in line” with the country’s fiscal objectives, The Sunday Times has learnt.

The shortfall may prompt an increase in excise duty

Income tax ceilings are not expected to be raised and some measures are to be taken to make up for the shortfall, which may prompt an increase in excise duty.

Finance Minister Tonio Fenech is expected to unveil the income tax decision in Wednesday’s Budget presentation, which will be the last for this legislature.

Ministry officials have been asked to carry out simulations on a number of options to reduce the maximum 35 per cent rate by three per cent for two years, and a further cut of four per cent in the third year.

Another option is to reduce the tax rate by five per cent for two years, according to sources.

The pledge, made before the 2008 election that helped the PN secure a third term, had proposed slashing the top income tax rate from 35 per cent to 25 per cent, up to a maximum income of €60,000.

The minister is expected to an­nounce that the Government collected €840 million in income tax revenue for 2012, with expectations of higher figures for 2013, based on higher corporate profits expectations.

But the revenue figure will be offset by additional health and pension costs, sources said.

Certain pension scheme anomalies are expected to be amended while the successful micro-invest scheme may be extended. More fiscal incentives are expected to be unveiled to promote solar energy.

Earlier this month, the European Commission recommended lifting the excessive deficit procedure for Malta in view of its consistent path towards a smaller deficit.

The Government had to present its 2013 estimates to the Commission to ensure the Budget to be presented remains within the parameters of financial stability under new EU fiscal rules.

Sources said this has limited the room for manoeuvrability, with expenditure being constrained in a number of areas to ensure fiscal targets are still met.

The 2013 Budget vote in Parliament is expected to be taken in the first week of December.

The Labour Party has said it will vote against the Budget but will implement the “positive measures” should it come to power in the next election, which is expected in March.