The government has told the European Commission that for the period 2013 to 2016, the gradual losses from the revision of income tax will be offset by similar gradual revisions in indirect taxation planned in the context of the budgetary exercise for the upcoming year.

The measure was revealed as part of an Economic Partnership Programme (EPP) which was submitted to the European Commission on October 1 together with a Report on Effective Action.

However, a Government spokesman has ruled out any increase in the 18 per cent VAT rate.

There is a range of other indirect taxes, other than VAT, which the government could raise.

The government is projecting a drop of some €40m in revenue from income tax, which will be made up for by an increase of revenue of almost €50m in indirect taxes and fees.

The documents, published today outline the Government’s plans to end 2013 with a general government deficit below 3%. They were prepared after the EU placed Malta under the Excessive Deficit Procedure. 

The Economic Partnership Programme (EPP) is divided in two main chapters. The first chapter presents the Government’s key policy planks which represent the crux of the Government’s fiscal and economic strategy and which also correspond to the Country Specific Recommendations (CSRs).

The Finance Ministry said this fiscal framework will ensure that Malta moves towards fiscal consolidation and achieves fiscal sustainability. The second chapter lays forward the necessary measures and reforms taken by the Malta Government in all sectors of the economy to ensure that Malta will exit the excessive deficit procedure permanently.

The main economic and fiscal measures proposed include: the diversification of energy sources and the restructuring of the energy corporation (Enemalta); the restructuring of Air Malta; the Pension reform process including the proposed introduction of the third pillar pensions; reforms underway in the health sector; further investment in education; as well as measures to reduce the poverty trap and therefore encourage people to get into employment rather than stay dependent on social benefits.

On Enemalta, the report says: In the short run Enemalta is expected to generate €36 million in savings from the recently installed diesel run power plant.

This has cut the cost of electricity generation to 11 cents/unit, from 17-18 cents. Management sees further revenue boosting potential through an ongoing cost reduction exercise, settling and resolving a number of locked and past -due accounts, greater billing efficiency, and the benefits derived from the PPPs, savings from the new generation engines, the interconnector and potential sale of non-strategic assets which could generate nearly €75 million.

The 200MW 230kV HVAC sub-sea interconnector between Malta and Sicily is expected to be completed before the end of next year, when Enemalta is expected to break-even."

Other important measures included under the EPP are measures to increase competitiveness through diversification, through incentives and programmes aimed at SMEs and other businesses and through various other reforms, including the holistic Justice reform.

The Report on Effective Action focuses on providing a quantitative analysis on how the Government will reduce the deficit-to-GDP ratio below the 3% threshold.

See both reports by clicking the pdfs below.