The government’s budget for 2006 was drafted in accordance with a strategic plan to use public finances in a flexible manner to bring about an increase in economic activity as well as an improvement in the quality of life, Parliamentary Secretary Tonio Fenech said yesterday.

In a briefing for journalists before accompanying the Prime Minister to parliament, Mr Fenech said the strategy covered the period 2006 till 2010.

He said one critical aspect of the budget was to better utilise capital and human resources within the public sector to increase productivity while also improving the standard of services offered. Economic growth, he said, was another major consideration.

Government plans to implement a series of changes so that it will cease to be a major operator by 2010. Instead it will take on the role of regulator.

The aim of this strategy, Mr Fenech said, was to improve market flexibility so that the market could adapt to changes without any problems, thereby allowing the country to increase productivity.

Mr Fenech said the budget was geared towards achieving the targets stipulated in the Lisbon Agenda – and ensure that citizens benefited from lifelong training and learning to create a culture based on knowledge which allowed people to develop to their full potential.

The environment and Maltese infrastructure are also being given priority in the budget, Mr Fenech said.

“Our target is to have sustainable development while providing a social security safety net so that citizens will not be left behind in a changing economy,” he said.

Gross Domestic Product and deficit

Budget 2006 aims to improve on a GDP growth of 1.7 (up to September ) which was up from a measly 0.2 per cent GDP growth in 2004. Growth is estimated to reach 1.1 per cent by the end of 2006.

Malta’s 2005 GDP figures (1.7 per cent growth) compared well with the EU 25 average of two per cent. Malta’s 2005 GDP growth was also higher than the Euro Area average of 1.6 per cent and was larger than that of Italy, Germany and Japan. The UK and the United States topped the leader board in 2005 with returns of 2.8 and 3.6 per cent growth respectively.

The deficit in 2004 stood at Lm94 million and projected figures ending 2005 were at Lm76 million.

Malta’s deficit percentage of GDP stood at 3.9 per cent in 2005 when compared to 5.1 per cent in 2004. This figure was expected to drop to 2.8 per cent in 2006, which would meet the Maastricht Treaty criteria and would also meet one of the criteria to join the Eurozone. In terms of GDP percentage, Malta’s deficit was still higher than the EU average of 2.6 per cent, which is the same rate registered in the Euro Area. Malta’s’ deficit percentage was also higher than the UK, France and Germany, but lower than that of the US and Japan.

Employment

Malta’s unemployment rate stood at 5.1 per cent, one of the lowest in Europe, only lower only than that in the UK – 4.7 per cent. The EU average unemployment rate stood at nine per cent compared to industrialised nations such as Italy (eight per cent), Germany (9.5 per cent) and France (9.7 per cent).

Jobs in the public sector and in manufacturing dropped while there were increases in the private sector and the construction industry. Wages had also increased steadily since 1999 (Lm110) to reach an average of Lm129 per week in 2005.

Cost of living and inflation

The cost of living increase this year was set at Lm1.75 per week, in addition to a 50 cent a week compensation for the increase in water and electricity surcharge. This means a total increase of Lm2.25 per week.

Pensioners will receive Lm1.67 per week, worked out on the two-thirds formula, including the full 50 cents water and electricity compensation. Inflation in Malta stands at the EU average of 2.2 per cent ranking lower than Iceland and Sweden (0.6 and 0.8 per cent) but better than 14 EU states with Latvia having the highest rate at 6.8 per cent.

Investment

Investment in 2005 increased by seven per cent over 2004 to reach a figure of Lm298 Million.

Tourism

Figures up to September for tourism were higher than those registered up to the same period in 2004, translating into 931,214 arrivals. Hotel occupancy rates were also up by 4.9 per cent and income from tourism was also up by 1.3 per cent.

Expenditure

The government announced it would be upping expenditure in various areas with Lm1.9 million in salaries, Lm8.2 million in social benefits and increased capital expenditure of Lm4 million. Forty-four per cent of total expenditure is related to the social aspect.

Other areas included food and agricultural subsidies (Lm5.2 million), medicines (Lm2 million), solid waste management (Lm2 million) and church schools (Lm0.6 million).

Meanwhile capital expenditure in 2005 increased by Lm40.5 million which included Lm19 million on Mater Dei Hospital, Lm18.5 million in EU funded projects and Lm10.3 spent on roads under the Italian Protocol.

Income

Income tax receipts are expected to rise by Lm17.5 million with social security contributions up by Lm2.7 million and licenses and other miscellaneous taxes up by Lm6 million.

Measures and initiatives

for 2006

Reform in Capital Gains Tax

As from today a system of Final Withholding Tax will be applied to the sale of property acquired. A rate of 12 per cent instead of the current 35 per cent will be introduced. Residential properties will remain exempted from this tax. The 12 per cent tax will be paid on the total value of the property.

For those properties acquired through inheritance before 25 November 1992, the seven per cent final withholding tax will remain. For those inherited after this date, the causa mortis tax will no longer be payable but a 12 per cent rate will apply. Withholding tax will be applied to the difference between the sale price and the price registered in the will.

Privatisation

The government will continue working on the privatisation of Maltacom plc and Bank of Valletta plc. Other projected projects for 2006 are the privatisation of Malta International Airport and Tug Malta. The government will also be looking at the creation of two yacht marinas in Marsascala and Xemxija. A total liberalisation of energy services is also envisaged to start as from 1 January.

Other regeneration projects include the rehabilitation of Fort Delimara, the Crafts Village in Ta’ Qali and the Dock no. 1 project in Cospicua. There will also be the publication of development briefs for sites in Dingli, Birzebbuga and Tigne’ in Sliema. There will also be reforms at MITTS and scrutiny of work practices at Enemalta and St Luke’s Hospital.

Incentives for industry

Malta Enterprise will be benefiting from an extra Lm450,000 for a total allocation of Lm2.3 million that will go towards a number of initiatives such as the building of new factories. There will also be refunds for film companies who choose to work in Malta – up to 20 per cent of total costs – and a system of tax credits for E-business and back office operations of up to Lm0.5 million each.

Registration tax for commercial vehicles will go down to 24 per cent from 35 per cent.

The vote for marketing at the Malta Tourism Authority will increase by Lm600,000 while an extra Lm500,000 will be allocated for branding.

Heritage Malta’s vote will increase to Lm2.3 million while the possibility of more agro tourism business will also be explored.

Employment

The Employment and Training Corporation will benefit from a grant of Lm1 million through co-financing with the EU for a special programme to combat illiteracy among workers over 40. The government will also be enforcing legislation to control temping and will provide Lm140,000 to upgrade 45 childcare centres. The government is also committed to increase the number of ICT specialists by 500 over 2005 figures and will be introducing various initiatives in the e-learning category.

Port and aviation

The new operator for ports will be announced in the first six months of 2006. The Malta Maritime Authority and the Civil Aviation Department will merge to create a new Port Authority.

Gozo

The government will be investing in new projects on the island of Gozo including a waste treatment plant, new roads financed by the EU, restoration of the Ggantija Temples and completion of the Mgarr and Cirkewwa terminal projects. The Xewkija Industrial Estate will also be revamped so that it can start catering for small and specialised industry.

Education

Government will be investing Lm5 million to build new schools in Qormi, Cospicua, Naxxar and Pembroke. A new directorate to regulate standards and quality across all government schools will also be set up.

Environment

Capital expenditure on waste management will rise to Lm15.9 million and will include the rehabilitation of Maghtab, Qortin and the Wied Fulija landfills, the purchase of equipment for 400 bring-in sites and the rehabilitation of the Sant’ Antnin facility. The government will be allocating Lm410,000 to train a number of Waste Management Trainers for the eventual introduction of waste separation.

Energy and oil prices

The government has commenced studies to analyse the possibility of buying electricity from the European Grid. Initiatives for Photovoltaic energy and for the use of solar heaters will also be introduced. The government is increasing the refund on solar panels to 25 per cent up to a maximum of Lm100.

Social policy

The government will be increasing social welfare spending to Lm473 million from Lm458 million. It will also be consolidating the means test system and will introduce a number of measures to help disabled people.

These include refunds for the installation of lifts in commercial establishments and the possible introduction of a five per cent VAT rate for home help services.

The Housing Authority will be allocating Lm3 million for the purchase of vacant properties for possible refurbishment and sale. A new fraud unit within the Family and Social Solidarity Ministry will also be set up to continue investigating fraud and abuse.

Health reform

The government has allocated Lm78.6 million for recurrent expenditure on health services and Lm40.6 million capital expenditure for the Mater Dei Hospital.

A reform in the way government procures its pharmaceutical products will also be implemented while Lm2 million have been allocated to deal with a possible flu pandemic.