The first Budget presented by the Labour Administration aims to encourage more people to work as well as to reduce tax evasion.

The Government said it was determined to cut the deficit by €40 million to €140 million, in an effort to reduce the deficit-to-GDP ratio to 2.1 per cent from 2.7 per cent.

However, the decision was nevertheless taken to go ahead with the planned reduction in the top income tax band to 29 per cent from 32 per cent, a measure which will cost it €13 million.

The Government did not introduce any new taxes but intends to bring in more revenue through more economic activity and an increase in duties on tobacco, fuel, alcohol, beer and bunkering.

The Budget was presented yesterday evening by Finance Minister Edward Scicluna – his second, as last April he had presented the one drafted by the previous Nationalist administration which had failed to get approved before the March general election.

The overriding theme was that “work should pay”, with a considerable number of the 250 measures in the Budget aimed at removing or reducing disincentives to work, whether through tax exemptions for the husbands of women over-40 working at minimum wage, to the retention of social benefits for a three-year period for the long-term unemployed who return to work.

The Government is forecasting real GDP growth of 1.7 per cent in 2014 (after 1.2 per cent in 2013), which is more conservative than that of the International Monetary Fund and rating agencies.

The Government is enticing people to come clean on tax evasion, offering a 15 per cent tax rate on rental income, for example, as well as rolling out a scheme for the registration of undeclared funds held overseas.

Top rate of income tax reduced

Prof. Scicluna said with more and more bank account information being exchanged between jurisdictions, it would become harder and harder for people to avoid detection and hefty fines would be imposed on tax evaders.

The Budget targets some surprising niches: a 7.5 per cent tax rate is to be levied on part-time footballers, for example, again in an effort to curb tax evasion.

The Government will also tweak a number of schemes. These range from giving stipends to students who have to repeat a year of post-secondary education, to allowing widows to earn more than the minimum wage without forfeiting their widows’ pension. Some of the main measures of the Budget have long been public knowledge, such as the reduction in household utility bills by 25 per cent for electricity and five per cent for water, as well as a cost-of-living allowance of €3.49 a week.

However, some details emerged in the Budget. For example, COLA is to be applied to stipends too, while pensioners who earn less than the minimum wage will not pay tax on the allowance.

To reach its deficit reduction targets, the Government needs to increase its tax revenue by €188 million and its non-tax revenue (most of which will come from the sale of Maltese citizenship) by €53 million.

This means it can only increase its expenditure by €200 million. It will spend €59 million more on capital projects – including the long-awaited Kappara junction flyover, five new schools, two new wards at Mater Dei Hospital and breakwaters in Delimara and St Paul’s Bay.

The interest paid on servicing public debt will go up by €2 million, thanks to the reduction in the debt-to-GDP ratio to 72.6 per cent next year from 72.9 per cent this year, as well as the uptake by Maltese of government stocks which enables the Treasury to offer reasonable interest rates.

Once things like wages, COLA and pensions are factored in, it leaves the Government with just €55 million in recurrent expenditure for new measures.

Prof. Scicluna said all the measures had been carefully weighed to ensure they provided value for money.

The approach follows the proverbial ‘give a man a fish and you feed him for a day; teach him to fish and feed him for a lifetime’.

Rather than handouts, he said the Budget measures were aimed at investing in schemes which would ultimately either bring in more national insurance contributions and taxes by getting more people to work, or reduce government expenditure on social benefits by making people more able to support themselves and improve their standard of living.

There are aggressive measures to get more women to work, the main one being a €3.8 million scheme to provide free childcare for the under-3s.

There are also a few crowd-pleasing measures. The 3.5 per cent stamp duty for first-time buyers will be waived on the first €150,000, for example, while the Government architect will be removed and replaced by a private architect.

The Government is also proposing to ask the Malta Financial Services Authority and the Competition Unit to review bank charges for businesses.

At a glance

Cheaper utility bills for households

☐ Water and electricity consumption tariffs for households will be reduced by five per cent and 25 per cent respectively by March. The tariffs for businesses will be reduced in 2015.

Unemployed keep benefits

☐ Those who have been on the unemployment register for over two years will be encouraged to work by retaining their social benefits for three years, declining from 65 per cent to 25 per cent.

Free childcare for under-3s

☐ Children up to three years old will be given free childcare as from April, a measure which will cost the Government €3.8m.

COLA of €3.49

☐ The cost-of-living-allowance will be €3.49 a week. This year, it will also be added to stipends pro-rata, at a cost to the Government of €250,000.

Income tax reduced

☐ The top rate for income tax will be reduced to 29 per cent from 32 per cent, while parents’ computation band will be widened to save households €75 a year. The threshold for 15 per cent tax on part-time work will be extended to €10,000 from €7,000.

Excise duty to go up

☐ Excise duty will be increased on cigarettes, spirits, beer, cement and fuel bunkering. Only half the 2c raise in excise on petrol is expected be passed on to the public when it comes into force in January, while the price of diesel will remain unchanged for three months.

Car registration refunds to be paid

☐ The Government will start to refund some €30 million of VAT paid between 2004 and 2008 on car registrations. The refunds will be staggered over seven years.

Finance Minister Edward Scicluna and the Opposition’s Tonio Fenech will go head-to-head on tonight’s edition of Times Talk.