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Updated: Minimum wage sparks off new row

Gonzi admits rise will affect tax

Prime Minister Lawrence Gonzi made his comments after a visit to the Foster Clark’s premises in San Gwann where he was accompanied by Finance Minister Tonio Fenech. Photo: Matthew Mirabelli

Prime Minister Lawrence Gonzi made his comments after a visit to the Foster Clark’s premises in San Gwann where he was accompanied by Finance Minister Tonio Fenech. Photo: Matthew Mirabelli

Prime Minister Lawrence Gonzi yesterday admitted that single people earning the minimum wage will end up paying tax on their gross income due to changes introduced in the Budget.

His comments differed from those he gave on Wednesday evening when he was asked about minimum wage earners by Labour media journalists during the press conference immediately after the Budget’s reading.

Asked by a Labour reporter whether he was aware that this Budget would cause minimum wage earners to be taxed, Dr Gonzi had said: “No, I do not know that those on minimum wage will be taxed, with income tax, if you are referring to income tax.

“To the contrary, the income tax, rate for those who earn minimum wage, will not be affected... zero.”

In a statement this afternoon, the Finance Ministry denied that Mr Fenech’s comments were different to what the Prime Minister had said.

The minister, the ministry said, confirmed what the Prime Minister said that the minimum wage was not taxable and it was only other income that was. This situation had not changed in the budget for 2013.

People on the minimum wage also enjoyed other benefits such as a higher children’s allowance and higher stipends for their children who were following educational courses or training.

Calculations by The Times yesterday confirmed the claim by Labour leader Joseph Muscat that single minimum wage earners will now enter the first taxable bracket of income due to this Budget’s cost-of-living adjustment in wages of €4.08 per week.

This measure raises the weekly pay of a minimum wage earner from €158 (€8,222 annually) to €162 (€8,433 annually).

When taking into consideration the Government bonuses given automatically during the year, single people who earn only the minimum wage will now end up forking out €60 in income tax annually.

When questioned by The Times yesterday, Dr Gonzi denied that this was an oversight, saying minimum wage earners were still zero rated if one excluded the bonuses.

“No, no... The facts are what they are. If you take the basic minimum wage, which is, by the way, the wage on which you calculate your pension, they are zero rated... They do not exceed the threshold for payment of tax.

“If you add the bonus, those who are single, unlike those who are married or parents, would end up paying tax. But that is if you count their other income (the statutory bonus),” he told The Times after a visit to the Foster Clark’s premises in San Ġwann.

Asked if this made sense in the spirit of a Budget that reduces income tax for those who earn up to €60,000, Dr Gonzi said it made sense when considering that in 2007, 2008 and 2009, tax thresholds were raised for people in low income brackets.

“You need to put everything into context... all the income tax benefits we’ve implemented in 2007, 2008 and 2009, which meant a big advantage for them.

“They have been enjoying this benefit for five years now so the benefit is multiplied by five,” he said.“What I find extremely strange is that having faced five years of criticism not having implemented our electoral pledge (to lower the top rate), once we start to implement it I get criticised just the same.

“Well, typical Labour politics in this island,” he added.

The Labour Party yesterday held a press conference to say it planned to reverse the situation where minimum wage earners on single computation were charged income tax.

MP Owen Bonnici and Labour candidate Edward Zammit Lewis pointed out that the minimum wage had now risen to €8,945, due to the cost of living increase and the statutory bonuses, exceeding the €8,500 non-taxable threshold.

Dr Bonnici said the Labour Party disagreed with this tax and it was therefore analysing the options to redress this issue, including the possibility of raising the threshold.

Still, the Finance Ministry issued a statement last night admonishing Labour for “repeating its mistake”. It insisted the minimum wage would not be taxed.

Without acknowledging the effect of statutory bonuses, the ministry said the minimum wage had increased to €8,433, and was still outside the taxable threshold.

“This shows that the argument of the Opposition leader, who said the minimum wage was being taxed, is incorrect,” the ministry said, adding that “other income” that exceeds this amount would be taxed like any other income.

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