Speaking during a press conference to explain the GRTU’s position after it had reached agreement with government on the tax, Mr Farrugia said: “Government just rushed it, way too quickly. It is a tax on spending.”
Mr Farrugia said the GRTU first learned the details of the eco-tax, which will come into force today, when approached by Minister George Pullicino and Parliamentary Secretary Tonio Fenech.
“We had also heard about it in last year’s budget speech. But at the time, there was never any mention of white goods being included,” he said.
Mr Farrugia said that the eco-tax will cover a massive spectrum of purchases, ranging from batteries, hotplates and washing machines to bottles and many items.
“We looked at the eco-tax from three aspects: the economic impact it will have, the way it will be implemented and the impact it will have on our particular sector (importers and retailers),” he said.
Mr Farrugia said that government initially wanted to generate Lm2.5 million from the tax. “But that later went up to Lm4 million. We immediately piped up and said that such a tax would be a burden on the consumer, and that it would cause deflation on the market,” he said.
Mr Farrugia explained that deflation means that if market demand is low, and a price hike comes along, the demand will drop even further and dramatically.
However, he heaped praise on Prime Minister Lawrence Gonzi. “It was a first. Dr Gonzi promised that the issue would be discussed by the MCESD and social pact forums and a compromise would be reached. This was a milestone, considering that the MCESD is only an advisory body,” he said.
Mr Farrugia said he understood the government’s urgent need to bridge the deficit gap. “To get rid of the problem in one year, you have to push GDP growth up by 16 per cent. That is a phenomenal task, but if spread over four years it becomes an achievable four per cent growth rate per year. But you must control the impact of taxation on the public,” he said.
This especially held true for income tax and social security contributions. “We proposed cutting the highest income tax band to 30 per cent from 35 per cent. We understand that this means a Lm10 million loss for the government, but we need to cut the burden being placed on the shoulders of the middle class, because it is huge,” he said.
Mr Farrugia said that when the government originally proposed the introduction of eco-tax, it wanted businesses to shell out for the stockpiles they had from before the law was in force.
“That would have been simple plundering of business assets. Think of it this way. If a person has bought stock from an importer, without tax, would it be fair to then charge him tax on each item, which would then of course be passed on to the consumer?” He gave a practical example. “If a businessman has a stock of 60,000 tyres, which he purchased eco-tax free, the government was literally demanding that he pay Lm2 on each item. That works out at Lm120,000!” he said.
Mr Farrugia said that at that point, something had to give. “We ended up threatening to lay off about 1,200 workers because it was getting absolutely ridiculous,” he said.
He explained that the government then relented and first offered to allow the taxes to be paid over a year, then two. “But we just refused to pay it because it was unfair to both retailer and consumer,” he said.
However, if a retailer has stock on his books that he purchased prior to 1 September (today) then he is not liable to charge tax on the items (meaning no tax for the consumer either). However, tax will be charged on goods that are purchased by the retailers as from today (brand new stock). “We wanted the least damaging way to implement the eco-tax and this is an improvement. At least, the price increase will be gradual and will not really be felt until December,” he said.
Mr Farrugia said he expected that businesses would gradually increase their prices. “And I do not believe that there will be any overcharging because you just have to look at the competition that is around nowadays.
“Businesses are always trying to undercut one another, so they will not get any benefit from cheating on prices,” he said.
Mr Farrugia said that he did not believe the eco-tax will help the environment. “There was not enough study at all. They needed to speak to people on the street to get the information they needed. It was a rush job and we do not think that it will deliver the results that government envisaged.”
An interesting fact that Mr Farrugia pointed out was that Lm1.2 billion is spent in Malta every year on household goods. “We are only envisaging a 0.1 or 0.2 per cent increase in the cost of living up to December. Government has projected a 0.84 per cent increase for next year but we do not believe it will be that high,” said Mr Farrugia.
He said that the government has managed to raise awareness among businessmen and made them realise that they have to help find a solution to Malta’s waste problems. “WasteServ will now have all the funds it needs and we hope that it will begin to function properly. The government, however, should be more transparent and allow representatives from the private sector on the MCESD to see where the funds are being channelled and what they will be used for,” he said.
Mr Farrugia said he felt that the tax will be particularly unfair on first-time buyers.
“They will have to pay tax on every item they buy for their new home and in reality, they have not generated any waste, because they will not have personally owned any white goods before,” he said.
He also warned consumers that unless they had a taxation invoice, they would be liable to pay eco-tax if they had ordered a particular piece of merchandise for delivery after today. “If people do not have an invoice, it means no financial transaction would have been made and they will therefore be liable to pay,” he said.