Middle income earners paying 35 per cent tax on part of their salaries will see this rate gradually fall to 25 per cent over a three-year period.

Income below €60,000 previously taxed at the higher band will have 32 per cent deducted by the taxman next year, 29 per cent in 2014 and 25 per cent in 2015, confirming last week’s exclusive in The Sunday Times.

The measure means a person earning €45,000 a year will save €500 in income tax next year, €1,000 in 2014 and €1,500 in three years’ time. Those earning €60,000 will save more than double that, with their tax savings reaching €3,600 by 2015.

Earnings over €60,000 will continue to be taxed at 35 per cent and there were no other modifications to other existing tax brackets.

An income tax band for parents introduced last year has been retained.

“We expect the reduction to cost the Government €10 million in the first year and €40 million in total,” Finance Minister Tonio Fenech told journalists at a press briefing yesterday.

Much of that revenue shortfall will likely be compensated for by excise duty increases on cement, cigarettes and fuel.

Mr Fenech said he was confident the income tax shift would benefit the economy by leaving more disposable income in the pockets of employees and small business owners. Widening the 25 per cent tax band to income up to the €60,000 threshold was a key electoral promise the present Government had yet to fulfil, with the international economic downturn having previously stymied Mr Fenech’s plans.

But although the global economy remains in poor health, Mr Fenech was fairly bullish about Maltese prospects yesterday, projecting 1.2 per cent growth for 2013, in stark contrast to the 0.4 per cent contraction expected across the EU.

Unemployment, at 6.5 per cent, remains well below the EU average of 10.5 per cent and year-on-year inflation fell to 2.3 per cent in September. And with government earnings up by €180 million this year, when compared to 2011, Mr Fenech believes the time is ripe for the income tax measure.

The €180 million windfall came from increased National Insurance contributions, VAT receipts and income tax revenue, Mr Fenech said, and would be used to finance the other measures proposed in the Budget for 2013.

But with Nationalist MP Franco Debono having preceded yesterday’s Budget speech by reiterating he would be voting against it on December 10, it remains to be seen whether the income tax reduction will ever see the light of day.

A failed Budget vote would prompt Prime Minister Lawrence Gonzi to dissolve Parliament and call a general election within three months.

Opposition Leader Joseph Muscat has said that if the Labour Party were to be elected, it would not rock the economic boat and hold on to the Budget’s positive key points.

If you’re married....
Chargeable income (€) Rate
0 – 11,900 0
11,901 – 21, 200 15%
21, 201 – 28,700 25%
28,701 – 60,000 32% (2013)
29% (2014)
25% (2015)
60,001 & over 35%
If you’re a parent....
Chargeable income (€) Rate
0 – 9,300 0
9,301 – 15,800 15%
15,800 – 21,200 25%
21,201 – 60,000 32% (2013)
29% (2014)
25% (2015)
60,001 & over 35.00%
If you’re single...
Chargeable income (€) Rate
0 – 8,500 0
8,501 – 14,500 15%
14,501 – 19,500 25%
19,501 -60,000 32% (2013)
29% (2014)
25% (2015)
60,001 & over 35%

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