Last year for the first time in 35 years we achieved a fiscal surplus, with revenues exceeding expenditure by €101 million. This was the result of the roadmap of this administration, which doubled our country’s economic growth and created more jobs in four years than in the previous 15 together.
The administration led by Joseph Muscat is the only one in our nation’s history to have reduced the burden of income tax every year it was in power. Upon being elected, Muscat removed the obligation to pay tax for those on the minimum wage. About 8,000 workers benefitted from this measure.
This was followed by the reduction in the top tax rate from 35 per cent to 25 per cent, which led to 45,000 taxpayers getting back, on average, €1,400. In the budget for 2016, 160,000 persons who had not benefitted from this cut were given back between €90 and €120. Finally from the start of this year, no tax accrues on pension income and 22,000 pensioners will save up to €585 in tax.
This administration has clearly shown that a fiscal surplus can be achieved while constantly cutting taxes. The millions that have been given back to taxpayers have generated their own payback.
The tax proposals now launched by Muscat are a continuation of what has happened in the last four years. The first tax proposal will put €46.5 million in people’s pockets. A total 190,000 persons will benefit between €200 and €340. For the first time in our history this tax measure will benefit those who currently do not pay tax. Previous tax cuts affected only those paying tax.
If Malta’s economy is to continue accelerating, we need to create the best environment so that people keep on studying
Let us look at a practical example. Consider a couple each earning the minimum wage. Thanks to the measures taken by this administration, they do not pay income tax. Yet, they will still get between them a benefit of €640 as a result of Muscat’s proposals.
These tax measures are designed to favour those on low incomes. A parent earning the minimum wage will get €320, while a parent earning €31,000 will get €220.
This does not mean that the middle class will not benefit. Consider a working couple with children who both earn the average wage. Currently they pay €1,220 each in tax. After this reform they would get €220 each back, meaning they would recover a quarter of their tax bill.
The second element is that the tax rate on part-time work is reduced from 15 to 10 per cent. This measure will save 29,000 part-time workers about €4 million in tax. Most of these workers are women who have family responsibilities and cannot work full-time.
Consider a 45-year-old clerk who has to shift to working part-time to take care of her elderly parents. She earns €10,000 and currently pays €1,500 in tax. If these proposals are implemented she will save €500. Basically she and thousands of part-timers will see their tax bill slashed by a third.
The third and final component of the tax proposals is an exemption for those who continue their studies. Currently Malta has one of the lowest rates in Europe of people with postgraduate studies. This skills gap places us at a severe disadvantage when we try to attract industries with high value added. If Malta’s economy is to continue accelerating, we need to create the best environment so that people keep on studying.
This administration has already done a lot by improving stipends and by introducing credits in the social security system so that graduates do not lose their pension rights while they study. However the new proposal would really change things dramatically. Someone who finishes a masters would not pay income tax the first year after graduation. If this person then continues studying and finishes a doctorate, they would get a further two years not paying income tax.
Yet again it is worthwhile to look at a practical example. Consider a nurse in a state hospital who decides to specialise further and finish a masters. If these proposals are put in place, the first year after the nurse graduates would save nearly €3,000 in tax. Consider an engineer who has just finished a doctorate. He would save nearly €10,000 in tax over two years.
Taken together the tax proposals made by Muscat will put back €52 million in people’s pockets over the coming years. It will impact hundreds of thousands, and constitute the most progressive tax cut ever implemented in our country.
It will give another boost to working mothers, to those on low to middle incomes and to those striving to improve their skills. These tax proposals are truly a foundation for the best time of our country.
Silvio Schembri is a Labour MP.