The Government yesterday revealed a plan to substantially increase its revenue from indirect taxation next year.
“A series of indirect tax measures” will raise €31.5 million and another €15 million will come from “revenue measures that would provide a service against a fee”, according to a government report sent to the European Commission.
However, a government spokesman yesterday ruled out an increase in VAT, the major form of indirect tax which currently stands at 18 per cent.
The tax burden will next year go up by one per cent of GDP, from 35.8 to 36.8 per cent.
The report, which was requested by the Commission following the start of an excessive deficit procedure last June, indicates measures to rein in the deficit to below three per cent of GDP by the end of 2014.
It provides no details as to which government services will start being given at a price or at an added cost, nor which indirect taxes will be raised. The fine details are only expected to be announced in the Budget.
The plan projects the loss of about €40 million in revenue from what it describes as “other expansionary measures to be announced in the Budget, including measures that are intended to spur growth and employment”.
The Government has already pledged to cut electricity tariffs by 25 per cent from March and to continue cutting income tax, a measure introduced by the previous government.
The report also reveals a €21 million cut in this year’s Budget, despite the Government having earlier stated that the Commission had not ordered any such cuts.
The Finance Ministry revised its Budget for 2013 downwards just five days after the EU’s Excessive Deficit Procedure against Malta was initiated.
The largest cuts (€12 million) affected budgets for 113 programmes and initiatives, while 57 government entities and 25 capital expenditure projects also saw their initial financial allocations slashed by €5.5 million and €3.6 million respectively.
No details are given on the specific cuts.
There are no indications of any major deviations from the overall fiscal targets of 2013
With regard to overall government finance, although indirect tax revenue until August was lower than projected – particularly due to a €66 million shortfall in excise duty from Enemalta that is expected to materialise before the end of this year – direct revenue is up €45 million and the Government is still optimistic about reducing the deficit to 2.7 per cent of GDP, as planned.
“There are no indications of any major deviations from the overall fiscal targets of 2013,” the report states.
In 2012, following a revision by the current administration, Malta had ended the year with a 3.3 per cent GDP deficit, triggering the EU’s disciplinary measures.
The report explains various measures to introduce more fiscal discipline and reduce government expenditure.
Apart from enhanced monitoring measures, including monthly revenue and expenditure forecasts, the Government is committing to a comprehensive expenditure review by identifying cost savings through eliminating waste and other inefficiencies.
It plans to reduce the public sector by 500 employees per year by recruiting two people for every three who retire.
More pension reform is planned, with the possible introduction of a voluntary, third-pillar pension.
The plan, which was made public on the Finance Ministry website, will now be reviewed by the European Commission.
Brussels may order other changes if it finds the indicated plans insufficient.
The Commission’s decision is expected next month.