Unions and employers were cautious yesterday when asked for their reaction a tax cut the Government is considering for its last Budget before the election.

Any decision to lower taxes had to be taken with the deficit in mind

Three organisations yesterday insisted they will have to see the whole package presented by the Finance Minister on Wednesday before commenting about a specific proposal to lower income tax.

The Sunday Times revealed that the Government may start delivering on its pledge to lower the top rate to 25 per cent from 35 per cent by spreading out the reduction over three years.

But Joe Farrugia, director general of the Malta Employers’ Association, insisted he first had to know whether the measure will be implemented before commenting.

“I have not seen any public commitment yet,” Mr Farrugia said, adding the Finance Minister had not raised the matter during meetings of the Malta Council for Economic and Social Development.

The social partners will be briefed about the Budget on Tuesday, 24 hours before it is delivered.

Mr Farrugia said the MEA had proposed changes to the tax bands that would have little impact on Government revenue because they would help draw money out of the black economy.

He insisted that any decision to lower taxes had to be taken with the deficit in mind. “Deficit reduction has to remain a priority, especially with the debt levels as they are,” he added, noting that any move to cut taxes or tweak them had to be viewed as part of a package and not in isolation. His sentiments were shared by the leaders of the two largest unions.

Tony Zarb, general secretary of the GWU, said he was disappointed to learn of the proposed tax cuts from The Sunday Times and not at the MCESD.

“The GWU has to see the whole Budget before commenting on one measure,” he said, adding the MCESD meeting scheduled for Tuesday allowed little time for discussion on the Budget measures.

UĦM secretary general Josef Vella said his union was not against a reduction in taxes but insisted on knowing the full details of how it will be implemented.

“We have to see what it means within the context of the whole picture. This is why I am cautious because we have other problems such as pensions that have to be financed in some way,” Mr Vella said.

The Sunday Times quoted sources saying that the Finance Ministry was conducting simulation exercises to determine whether the 10 point cut will be spread over three years, starting with a three point reduction in the first year. Another option is to cut the tax rate by five points, two years in a row.

It is unclear though whether the tax cut will apply across the board or target taxpayers with children, who were already given a preferential parent rate last year.

The tax cut would most likely be accompanied by an increase in excise taxes to make up for the shortfall in revenue.