Taxpayers will soon be encouraged to start contributing towards their pensions as the Government plans to introduce the so-called third pillar in the next Budget.

It will stick to its pledge to keep cutting income tax and will still cut the deficit to below three per cent this year, according to Finance Minister Edward Scicluna.

Presenting the pre-Budget document, he said Malta was “on track” with its plans, even though its forecasts were still being questioned by the International Monetary Fund and the European Commission.

“We have agreed to disagree,” Prof. Scicluna said, adding the Commission had left matters in the Government’s hands and would wait until the Budget before demanding specific action.

The central government deficit improved by €43 million, down from €284 million in the first six months of last year to €241 million in the same period this year.

Prof. Scicluna said the pre-Budget document was being published “two months” in advance for public

consultation, indicating that the Budget could be presented as early as October.

“This document makes for good holiday reading on the beach. After their vacations, the social partners can tell us what they think,” he said jokingly, adding that consultations would begin on September 2.

Prof. Scicluna said the Budget aimed to generate wealth and make it available to everyone while tackling the country-specific recommendations made by the Commission, which include pensions.

We have agreed to disagree with IMF and European Commission

A group of experts was set up to propose various options regarding third pillar pensions, following up on what was done by a working group that included Family Ministry officials.

Prof. Scicluna said for the first time taxpayers would be allowed to contribute to an optional third pillar pension. There would be incentives to join this scheme and people would be guided on which products to invest in, he added.

“We have seen untold millions of euros being lost by people who invested in products that turned sour,” he said, auguring that this would not happen again.

Asked whether the Government would backtrack on its plans to fulfil a Nationalist Party proposal to widen the tax bands over a three-year period, Prof. Scicluna said: “So far, there is no reason to hold back from continuing on this plan.”

“No finance minister ever says ‘never, always or definitely’. Things change according to circumstances. But, for now, things are stable, permitting us to move along with our plans,” he said.

The tax rate for those earning up to €60,000 was this year reduced from 35 per cent to 32 per cent. As from next year, the plan is for the rate to go down to 29 per cent and drop further to 25 per cent in 2015.

Prof. Scicluna said the Government’s forecasts had taken into account the lower revenue resulting from taxpayers paying less income tax.

“It is good to give a breath of fresh air to the people who are in this bracket,” Prof. Scicluna said.

Asked whether the Government would introduce new taxes to cover the loss, Prof. Scicluna did not go into specifics. He said the Government’s plan was to tackle taxes holistically, aiming to stabilise the tax burden with a view of starting to ease it by 2015.

Questioned about his apparent change of tone about Malta’s economy since the election, Prof. Scicluna said that before the election he was talking about last year’s figures while he was now referring to this year’s.

He said the statistics proved that political instability before the election had led to less consumption.

At the start of his presentation, Prof. Scicluna referred to National Statistics Office figures on imports and exports, which appeared to show a drop in exports. However, he noted that the statistics were distorted due to Malta’s re-exportation of fuel.

“In reality, exports remained the same in the first six months of the year,” he said.

Pension pillars

First-pillar pensions

Issued by the Government to taxpayers on reaching retirement age.

Second-pillar pensions

Contributions made by employers to supplement employees’ Government pensions.

Third-pillar pensions

Private pensions involving people saving for their future through investments, assets and life insurance.