When, during the last election campaign, Labour laid out its new plans for Malta, with Joseph Muscat, now Prime Minister, speaking of road maps and a new way of doing things once they were in government, many might have run away with the idea that the PL had some secret formula that could propel Malta ahead without any trouble at all.
When, unwisely, the Nationalist government incorporated a tax cut in its last Budget, Labour left the rise in place when it presented the same Budget for Parliament’s approval after the March election. It could not do otherwise politically, for it would have incurred the wrath of the electorate had it decided to make any changes. When the electorate was so generous with the party, electing it with a nine-seat majority, the last thing Labour must have wanted to do was irritate voters.
But money does not grow on trees and, sooner or later, the Government had to come out with a plan to make up for the loss of revenue from the cut in the direct tax. This is what it now plans to do, offsetting the loss with indirect taxation. This is how it has put it in its report to the European Commission setting out how the Administration plans to bring down the deficit in the government’s finances to below the three per cent threshold as required under European Union rules: “For the period 2013 to 2016, the gradual losses from the revision in the income tax regime affecting direct taxation will be offset by similar gradual revisions in indirect taxation planned in the context of the budgetary exercise for the upcoming year.”
The moment news of these plans hit the airwaves, many thought the Government intended raising the VAT rate, with some crying foul because such a move would have gone against the party’s promises. But this was immediately ruled out, meaning that the taxpayers will now have to wait and see how this Administration plans to raise the funds needed to offset the loss from the cut in income tax.
As happened in so many other countries, this is likely to stir some controversy over what is best: direct or indirect taxation. Indirect tax is less easy to avoid and it can also affect people on low income. But there is more to the Government’s plan besides moving towards indirect taxation. It also aims to step up the drive to check tax evasion and avoidance, clearly a matter that can hardly be criticised.
Revisions to the VAT law will also empower the finance minister to revise as necessary the penalties and interest payable on taxation due in order to increase tax compliance and ease the recovery of amounts due.
Improving efficiency in tax collection through the amalgamation of the revenue departments will, naturally, also contribute to the recovery of money due to the Administration.
In the documents it has presented to the European Commission, the Government has once again expressed confidence in its belief that the deficit will be brought down to below three per cent this year. The European Commission does not think Malta will make it, projecting a deficit of 3.7 per cent to the Government’s forecast of 2.7 per cent.
Whatever short-term plans the Government may be drawing up to tackle the deficit, the country will need to concentrate on ways and means of promoting greater economic growth.