Budget 2007, potentially the last one before Dr Gonzi calls an election, is just 10 days away. The pre-budget document published in early August was intended to kick-start debate and consultation on government’s options and proposals. The Greens welcome the publication of such a document, as we believe that it is a useful exercise in political participation, although we think that a shortened version, (of say 10 to 15 pages), would enable many more people to participate.

The pre-budget document was a classic case of “the spirit being very willing, but the flesh very weak”. While the document presents a very long wish-list of things the government knows the economy needs, it falls very short at indicating how the funds required are to be sourced. I estimated that in order to carry out the measures listed in the pre-budget document, the government needs anything between Lm20 – Lm30 million. Instead we were told that only Lm8 million is available. Eight million is not enough, in fact it falls terribly short of meeting government’s targets and the population’s needs. I consider that, in such circumstances, a miserly budget will be presented.

Alternattiva Demokratika’s budget task force therefore sought to present proposals not on how Lm8 million should be spent, because this would simply not serve to kick-start the economy and give the deserving tax-paying public something back, but on how to increase the funds available to meet more of the country needs. We have determined that the sum of Lm18 million is required to invest in our economy. However, we did not stop at identifying only the needs. We have made proposals on how the funds available are to increase from Lm8 million to the required Lm18 million. For those with the time to read our detailed proposals visit our website www.alternattiva.org.mt. For all the others, allow me to delineate the key aspects of our proposals.

In order to increase the funds, we have proposed that the income tax rate on banks and telecommunication companies should increase from 35 per cent to 40 per cent. This measure will bring in Lm4 million. We believe that these companies, which have been enjoying super-profits over the last years primarily due to the fact that there are only a few players in the market, should contribute more to the country’s coffers. It is imperative that in the coming years, the middle class must not carry the burden of any additional tax. It is this same middle class that has been asked to make very significant personal sacrifices in order to rectify the country’s dire financial situation the Nationalist Party in government is responsible for. We have proposed that the bulk of this saving is channelled into lowering the income tax rate on small- and medium-sized enterprises (SMEs). We believe it is high time that a small companies tax rate is introduced. It is economically unsound to continue taxing all companies at the same rate irrespective of the market conditions they enjoy.

In order to increase funds available to Lm18 million, we also propose that in its strategy to combat tax evasion, the government targets those business operators who unashamedly operate an “open cash register system”. It is evident to every one that there still exist a number of businessmen (small in number) who continue operating their business without any obligation to collect VAT and pay Income Tax; a number of them are also known to collect social security benefits! This situation is unacceptable. The people who should support this measure the most are those businesses that pay their fair share and face unfair competition from the few who operate outside the system.

Apart from collecting taxes due, the government is also obliged to combat social security fraud and control its operational expenditure. We have made proposals that set clear financial targets for this. We believe that a more concerted effort must be made to combat abuse of the “boarding out” system that is costing the country Lm15 million every year. We propose a target saving of 10 per cent of this amount. Half of the amount (five per cent) should serve to increase government funds for this budget, while the other half should be used to increase benefits to the needy. This will result in a win-win situation for the government and genuine beneficiaries; the losers are the fraudsters; who cares? We are also proposing a five per cent cost reduction in government’s operational expenditure. It is not enough for Tonio Fenech to declare that operating expenditure has not increased – it should decrease, in real terms.

It is likely that the government will implement an income tax reduction, though with only Lm8 million available it is doubtful what real effect this will have. Furthermore, a revision of tax bands is likely to benefit those on higher earnings. The Greens think otherwise. We believe that assistance should be given in areas were they are needed most. It is a shame that our tax system does not even recognise children, when it is clear to everyone that those most in need are families with children. Therefore, we suggest that instead of a broad based tax cut (that is more electorally driven, rather than economically and socially sound) a cash benefit of Lm40 per child is given for every child.

Furthermore, we propose additional investment of Lm1.5 million in tourism.

For Gozo we propose a further Lm1.75 million primarily targeted to tourism related initiatives.

Finally, we propose that the departure tax is removed. Alternatively, we suggest that it is replaced with a carbon tax of Lm10, only if the funds generated from this tax (i.e. Lm2 million) are invested in public transport, particularly in the upgrading of the fleet and a revision and expansion of routes.

Edward Fenech is spokesperson on finance, the economy and tourism of Alternattiva Demokratika – The Green Party.