Next year will be a financially challenging one, Finance Minister Edward Scicluna warned today. It will be challenging because the government will have to deal with three troubling entities: the failed public transport system, Enemalta and Air Malta.
Professor Scicluna was addressing the last meeting on the subject of the Budget 2015 with the MCESD partners.
The Finance Minister said the challenges the government is facing will not be impossible to overcome. The final €40 million injection into Air Malta will be made next year. This is a big spend that will restrict the national budget but is required both because of the restructuring agreement and also because the airline is crucial for the tourism sector.
Prof Scicluna said the government also aims to incentivise the use of public transport because heavy traffic congestion is having negative effects on the country's economy. "Other countries have even had to introduce taxes on personal cars. We have to incentivise the use of public transport," said the minister.
He inisited, however, that the government is on track to reduce the defecit to 2.1% by the end of this year and to 1.6% by the end of 2015. The target for 2014 will be reached despite the fact that, by September, there was a shortfall of €74 million. This included €65 million in excise duties owed by Enemalta to the government. The amount will be settled once negotiations with Shanghai Electric Power on the power station are concluded and the Chinese state-owned company buys a minority stake in the utilities corporation.
The minister said government spending was exceeded by €58 million and revenue decreased by €16 million. The national debt currently stands at 69.8% of GDP.
The government will also keep its promise to reduce income tax from 29% to 25%. This will cost the government some €20 million.
On indirect taxation, the minister confirmed that these will increase but said that indirect taxation always increase because of the nature of the tax itself.
The Finance Minister also said he was shocked by the "incorrect" EU report that stated that Malta had lost up to €240 from tax evasion. He explained that the EU had assumed that the iGaming sector is taxed by 18% when it is in fact exempt from tax. The potential amount lost from tax evasion was €25 million in 2012 and €12 million in 2013.
Turning to the cost of living adjustment, the Finance Minister said the government would not interfere and propose changes to the COLA mechanism unless there was agreement by the employers and unions. The government had however noted that the amount was too low and would hurt those on a minimum wage, benefits and pensions and students. This situation will be rectified in the budget, he said.