Although the economy was growing at favourable rates, the economic benefits are not trickling down to Malta’s middle class, Chamber for Small and Medium Enterprises (GRTU) director general Vince Farrugia said yesterday while detailing the chamber’s proposals for budget 2008 yesterday.

Among the GRTU’s main proposals for next year’s budget, which is to be announced on 15 October, are a “revolutionary” revision of Malta’s income tax bands and a shake up to property tax regimes.

A recent survey carried out by the chamber, Mr Farrugia cited yesterday, asked members for one single matter they would like to see emerge from the budget and over 85 per cent of respondents said they would like to see more of the money being generated by sections of the economy that were performing well reaching their pockets.

To this end, Mr Farrugia yesterday urged the government to heed the fact that it is not the big companies that are in essence driving the economy, but rather Malta’s small businesses.

As such, Mr Farrugia called on the government to “give the middle class a break” by carrying out a “radical” revision of the current income tax brackets.

“From our analysis it emerged that disposable income is deteriorating and people are feeling the pinch, despite the growth in the country’s gross domestic product,” Mr Farrugia commented.

While acknowledging that Malta’s inflation rate was at a low level, Mr Farrugia observed that while month on month inflation was descending, this was mainly the result of a lowering of the surcharge levied on water and electricity consumption, and that, as such, the actual cost of living per se had not declined.

Price hikes in fruit and vegetables as well as in fish, he added, were down to incompetence in the running of Malta’s exchange markets for such products – namely the pitkalija fresh produce market and the pixkerija fish market – and that it was the government itself that was responsible for the state of affairs.

The government’s tax relief initiative that was started in this year’s budget, the GRTU said yesterday, should continue in the same vein in next year’s budget, adding that the current income tax band layout “continues to castigate middle income earners, especially families and couples where both parents are employed on a full-time basis”.

The chamber yesterday proposed the zero tax rate for the couple computation be increased to Lm7,000, a 15 per cent tax for the Lm7,001 to Lm15,000 band, a 25 per cent tax rate for the Lm10,001 to Lm15,000 bracket and 35 per cent for the Lm15,000+ bracket.

As far as the single computation is concerned, the GRTU yesterday proposed a revision along the lines of a zero tax rate for incomes less than Lm5,000, 15 per cent for the Lm5,001 to Lm8,000 bracket, 25 per cent for single incomes between Lm8,001 and Lm12,000 and 35 per cent for incomes over Lm12,000.

The chamber also proposed that self-employed and other non-incorporated small businesses with turnovers of less than Lm250,000 be given the option of a three per cent withholding tax, while turnover would be calculated on a quarterly basis.

Also included in the GRTU’s budget proposals was a raft of suggestions for the property market which, Mr Farrugia said, was oversupplied in terms of flats and maisonettes.

Today’s supply situation stems from the recent heavy investments in property, which Mr Farrugia described as positive for first time buyers, but he warned that if prices were to fall banks might become reluctant to lend on account of the possibility that the value of the loan could eventually exceed the value of the property itself.

The GRTU yesterday reiterated its proposal, first put forward in October 2006, that the 3.5 per cent duty on the first Lm30,000 expenditure by first time buyers be increased to a Lm50,000 threshold.

The GRTU also took exception to the current practice in which a government architect evaluates a property between the promise of sale stage and the final contract. This, the chamber said, should be done in “extreme circumstances” since promises of sale are now public, fully declared and registered.

The chamber also called for a change in the taxation paid by developers. As matters currently stand, developers either pay a 35 per cent tax on their profits, or a 12 per cent tax on the final sale price of a property. But if five years pass between a development’s inception and its sale, they are constrained to the 12 per cent option – presenting problems for developers who take longer than five years to complete a project. As a means of correcting the situation, the GRTU yesterday proposed a seven percent final withholding tax on the final declared value of a property.

It was also proposed that interest, or a part thereof, on home loans taken out by first time buyers should be made tax deductible. The GRTU also proposed the maximum lending period for home loans be increased from 40 to 60 years with a view to reducing monthly repayments.

Addressing what it described as excessive burdens on restaurants and snack bars, the GRTU yesterday recommended that the 18 per cent value added tax rate be applicable only to the added value of products sold, excluding labour costs and other ‘non-VAT-able’ inputs. Such a measure, Mr Farrugia said yesterday, would reduce VAT paid by catering establishments by up to two-thirds.

The employment of individuals with special needs should, according to the GRTU, be boosted by the setting up of a special employment agency dealing with job seekers such as those with less than favourable police conduct records, mental or physical ailments and others suffering social exclusion. Such an agency, which could be run with the cooperation of the private sector, would employ, train and provide necessary guidance and support such individuals.