The pre-budget document which has been drawn up by the government builds on the last document outlining long-term strategies, proposing fiscal relief as well as other measures with the aim of continuing to sustain growth and progress.

Information obtained by The Malta Independent indicates that the pre-budget document 2007, entitled Securing our Future, which is being published by the government tomorrow, seeks a debate on a number of issues which emanate from last year’s three pillars. This year’s document includes a socio-economic strategy for Gozo, a review of the fiscal regime, a policy on sustaining tourism and industry, and a policy on sustaining growth through research and innovation.

Before the 2006 budget, the government launched its first pre-budget document entitled A Better Quality of Life that presented a five-year vision and strategy for Malta and Gozo. This strategy was based on past achievements in the context of Malta as a new European Union member state.

In a nutshell, this strategy emphasised the need to further develop the country’s competitiveness. This strategy was based on three important pillars: strengthening the economy, the promotion of education and social progress as well as a sustaining the environment.

By way of this year’s budget document, the government presents the major findings and recommendations of the Tax Reform Commission, which carried out a review of Malta’s fiscal systems and compared them to those of neighbouring countries and other European Union member states.

An interesting fact is that Malta relies a lot on indirect taxation, which is equivalent to around 45.1 per cent of total tax revenue. This is a positive aspect for the Maltese economy. The average in the 25 EU member states is 38.2 per cent. It is believed that the shift from direct taxation to indirect taxation will encourage people to save and consequently the potential output of the economy will increase.

The review revealed that Malta’s taxation on labour is among the lowest in the EU with 12.2 per cent of the gross domestic product when compared to the 18.5 per cent average in the EU25.

The document includes a proposal to change the present company taxation system, which is needed in order to sustain the growth prospects of the financial services industry. This change, as such, would not affect local residents or business but is directed at maintaining Malta’s attractiveness as a foreign direct investment destination.

Based on the workings of the Tax Reform Commission, the government is considering a number of measures spread over the next two or three years, subject to the overall performance of the economy.

It is worth noting that 37 per cent of taxpayers in Malta are not subject to income tax because they declare an income within the zero tax band. On the other hand, one-fifth of taxpayers are subject to a tax bill of more than Lm400 every year. The government is therefore proposing the extension of the zero band of income tax.

Finance Ministry officials confirmed that the Tax Reform Commission did propose a shift in tax bands, but added that the movements in tax bands that are being speculated are somewhat exaggerated compared to the government’s plans. What is certain is that the government intends to propose measures keeping in mind the objective of maintaining a sustainable deficit below the three per cent mark of GDP, especially in view of Malta’s prospects of adopting the euro in January 2008. Other measures that seem to be considered deal with issues related to part-timers, the self-employed and the departure tax.

This pre-budget document also includes a socio-economic strategy for Gozo. The island’s small size, double insularity and also being on the periphery, are rendering Gozo more vulnerable than Malta to adverse economic events.

Through this strategy, a sound policy framework for Gozo should be directed towards addressing the particular needs of the island and seek to transform challenges into opportunities.