It is perhaps inevitable, although somewhat short-sighted, that after the budget speech the population seems to be concerned almost exclusively about just one aspect – the change in the tax bands. I say “inevitable” because in such a fast-paced life, people do not have the time (and probably neither the desire) to absorb all the conclusions and implications that emanate from such a comprehensive fiscal and economic exercise. “What is left in my pocket” is the primary measure on which people decide whether this has been a good budget or not. Fair enough, I guess.
In the pre-budget document issued in August, the government had announced that there was some Lm8 million available to give back. Last Wednesday that figure rose, rather miraculously may I add, to almost Lm20 million. The consultation exercise was based upon a deception – most of them are. The government is earmarking Lm12 million of this sum towards a tax cut.
It is not an easy task to criticise a tax cut. Those who get the tax cut will never accept your argument, irrespective of its logic, while those who will not get a tax cut, can’t care less anyway. My purpose here is not to say that the government should not have given Lm 12 million away, but to propose an alternative as to how these funds could have been given away in a manner that is more economically effective and socially just.
The plain truth about any tax cut is that the ones who benefit most are those who earn the most. That in itself is not a bad thing, except when the tax cut is designed in such a way that those on low to medium-low incomes are left with a pittance.
Parliamentary Secretary Tonio Fenech can argue forever on this, but the fact remains that with this tax cut, families on modest incomes are picking up the crumbs. Indeed, this tax cut is, at least in my living memory, the first experiment with Reaganite trickle-down economics undertaken by a Nationalist government.
Let me explain, with an example, why the Greens cannot applaud this tax cut. A family raising two young children on a single income of Lm6,000 (which is very typical to Malta) is to be given a tax cut of Lm30 per annum. Both parents will have to be extra careful when driving, lest they inadvertently over speed by 5km/h and lose all their tax cut!
On the other hand, a middle aged couple (with no kids living at home) with separate incomes of Lm8,000 each will enjoy a tax reduction of Lm310 – over 10 times the tax cut given to the first couple. I do not know what you may be thinking but in my book, there is something fundamentally unfair about such an outcome. It is obvious to me that the family raising children is in need of assistance, so why are they getting so little? Why do we have such a child-unfriendly tax system? Somebody writing on this paper recently suggested that people who cannot afford children shouldn’t have them. How clever!
The Greens do not wish to be critical of this tax cut without suggesting an alternative; that is the way we always do politics. Here is our alternative. In our budget recommendations we insisted that one sector of society that must be assisted is the one of young families raising children. We suggested that rather than a broad-based tax cut, the government should consider giving a child cash benefit to families raising children.
We have been recommending this for two years because when Malta’s tax system was changed, some six years ago, existing benefits for child-rearing were removed in their entirety. Ironic that the Christian democrats had, inadvertently I hope, eliminated deductions for children!
We believe that our proposal for child benefit and the government’s tax cut can be married in a manner that produces a fairer outcome. Specifically, we are now recommending that the Lm12 million available to distribute be split into two equal amounts of Lm6 million each.
The first Lm6 million should be targeted as a child benefit. This would translate into a cash benefit of Lm100 for every child. It would mean that the family on Lm6,000 would be guaranteed Lm200 per annum as a minimum, rather than the Lm30 the government is now offering. It would mean that irrespective of income levels, families raising children would be assured of a substantial benefit.
The flip side of this is that the other couple (taking home Lm16,000) would not enjoy anything from the first lot of Lm6 million. However, there would still be the other Lm6 million left. With these, the government can go ahead and give a tax cut that would give something back to those who pay most of the taxes in this country – the salaried middle class.
We strongly believe that a child benefit is necessary to assist those in most need. It is time to channel resources to alleviate the ever-increasing costs of raising children. This doesn’t need to be done at the cost of eliminating the tax cut – it need only be reduced. We encourage the government to heed our proposal. It is its chance to prove that the thrust of this budget is not to satisfy disgruntled Nationalists. It is its chance to show that it has not lost its social conscience.
Edward P. Fenech
Spokesperson – Finance, the Economy and Tourism
Alternattiva Demokratika – The Green Party