Working parents will be able to save up to €420 each a year in tax under a new category announced yesterday by Finance Minister Tonio Fenech when presenting the 2012 Budget in Parliament.

The new “parent computation” category will be available for working parents supporting children who do not work up to the age of 18 or study up to the age of 21.

Mr Fenech said these tax cuts, which will cost €10 million, were aimed at making the labour market more attractive for parents but also that they come as a compromise on the electoral promise to cut the top income tax rate from 35 to 25 per cent.

He said the government was “constrained” by the crisis in the eurozone and a likely recession in Europe on the horizon and, in the circumstances, could not go for the full cut, which would have cost an estimated €40 million.

The measure was complemented with other family-friendly measures such as an increase in the minimum children’s allowance from €250 to €350 for every child. Similarly, parents who send their children to private schools will see their maximum tax rebates extended by €100, €400 and €700 for childcare, primary and secondary school respectively.

In other measures, next year’s weekly cost of living increase will be €4.66, the €35 TV licence has been scrapped and pensioners over 80 who live independently in their own home will be given a grant of €300 per year.

The allocation for industry has been increased to €14.2 million and the Malta Tourism Authority was allocated an additional €1 million.

The minimum excise duty on cigarettes will rise by 5.8 per cent on each packet of 20 while the registration tax on old Euro I to Euro III vehicles will be increased to discourage their use and purchase.

Mr Fenech said that Malta’s deficit for 2011 is estimated at 2.8 per cent of GDP while the target for 2012 is 2.27 per cent of GDP.