The government has not ruled out a tax cut within this legislature, Finance Minister Tonio Fenech told The Times Business in an interview, even though there would be no such cuts in Monday’s Budget.
Mr Fenech said the government would continue to consolidate its finances and its deficit target for 2011 was 2.8 or 2.9 per cent.
He said that unless the deficit was reduced to below the three per cent threshold the government would never have the flexibility to introduce tax cuts.
“Historically, we have always tried as much as possible to reduce taxes on income and we believe that taxation should be more in terms of a consumption pattern, such as the polluter pays principle, rather than going into areas that tax income. When you tax income you are reducing the propensity for growth because you are creating a disincentive for people to make an extra effort. So, yes, we would still like to reduce income tax,” he said.
Mr Fenech said the overall thrust of the Budget will be a balance between the promotion of economic growth and an attempt to cut down on the fiscal deficit.
He acknowledged that the EU’s latest attempt to ensure that all member states adhere to the 60 per cent public debt threshold was a “challenge” for Malta, which has a debt of 69 per cent.
Mr Fenech dismissed the idea that Monday’s Budget was the government’s last chance to introduce difficult or unpopular measures, saying: “Including this Budget we still have three Budgets to go, so this is a mid-term Budget.”
He said the next Budget would focus on cost reduction measures across the government but “obviously not in the areas that are needed for our economy to grow such as education and incentives for industry.”
He added: “We are also conscious of our social responsibilities, so we will always give pensioners an automatic increase for example.”
Mr Fenech said there will be no major pension reform initiatives announced on Monday saying the pension reform task force report will be published sometime next year “and discussions will be held then”.
The Finance Minister said he was sympathetic to the MHRA’s plea for him not to introduce any more government induced costs on the tourism sector but dismissed the claim that the new water and electricity rates were such a cost.
“The water and electricity rates are what it costs us to produce energy. We all consume it. If the hotels and restaurants don’t pay for it, who will pay for it? I don’t think it is right for consumers to pay the energy costs of hoteliers,” he said.
Mr Fenech said for an economic sector to be sustainable it must be able to pay for its core expenses which include water and electricity, adding that if “we can’t attract enough tourists to enable these costs to be covered then I would start questioning whether this sector should be given that much importance.”
Asked whether the Budget would contain any measures to ensure that ARMS Ltd becomes a more efficient company, considering the shoddy service water and electricity consumers have received, the minister said: “ARMS is not a budget issue, it has the necessary funds to carry out its work.”
Mr Fenech, did, however, acknowledge that ARMS had a difficult year and stressed that the Prime Minister has apologised for what happened.
“This was the government’s failure and we have taken steps to address the situation,” he said.
Mr Fenech also said the billing situation at ARMS was being regularised, the queuing time has now been reduced and the government was reviewing the procedure involved when a name on a bill needs to be changed.