Prime Minister Lawrence Gonzi yesterday presented Budget 2008 in the House of Representatives with the main focus being on increased allocations to the three pillars for the development of the country – education, environment and economic growth.
However, some very tempting sweeteners were thrown in, including favourable tax band revisions for both single people and married couples as well as wholesale reform of tax bands, increased children’s allowance and various fiscal incentives for companies that contribute to the cultural aspect of Malta and Gozo. The family was another sector, which as expected given the government’s slogan of ‘strengthening families’, which received special attention with a boon of incentives being given to parents and their children.
Malta’s sister island was also in for special treatment with a total of 20 measures announced for its all round improvement.
The government’s ‘three pillars’ will be used to further improve Malta through the development of six ancillary centres of excellence in the centre of the Mediterranean. These aim to make Malta the best of the best in the field of information and communications technology, health, high-end industry, tourism, education and the financial services sector.
In fact, various measures were announced to further the development of all of them. Another now-accustomed announcement was the Cost of Living Adjustment. Although the government calculated that the COLA was to be of 50 cents, it was issuing Lm1.50 in anticipation of the effect of the international cereal and grains crisis. In addition, the COLA will be given to pensioners in full. There were other favourable incentives for the elderly, mainly related to pensions, the option to carry on working while receiving pensions and right to abode in view of death of a spouse.
The aims of Budget 2008
Budget 2008 has three main aims, keeping in mind a growing economy. The first of these is to reduce the deficit by an additional Lm20 million in an effort to meet challenges which might lie further in the future.
The government’s second aim is to invest Lm140 million more in the economy, industry, tourism, infrastructure, schools, national heritage and the environment so as ensure more growth in the future.
The third and final aim is to share some of the wealth generated over the years by implementing Lm21 million worth of measures in favour of employees, families and pensioners.
Economic performance
in 2007
The general performance of the economy continued to show signs of improvement – with GDP in real terms for 2007 increasing by some 0.3 per cent over 2006, achieving a growth rate of 3.6 per cent. This is projected to rise to close to 4 per cent growth by the end of the year, eventually passing the 4 per cent mark in 2008.
Importation decreased by some 3 per cent between January and July 2006, mostly due to the halt of importation of materials used in the construction of Mater Dei Hospital which siphoned some Lm40 million per year in recurrent expenditure. Exports, on the other hand, increased by some 6 per cent for the same six month period over the previous year.
2007 saw a record year for gainfully employed increasing from 139,480 in 2006 to 140,067 in 2007. This means an unemployment rate of only 3.9 per cent for the first six months of 2007 compared to 4.5 per cent in 2006. Taking figures up to June 2007, the amount of people registering for work stood at 5,701 compared to 6,601 in 2006.
The amount of part-timers in 2007 increased by 3,130 over 2006, to bring the total up to 46,318.
Direct foreign investment for the first six months of the year totalled Lm117,757,000, comparing well to the previous year when not taking into account extra ordinary investment by two banks and the purchase of Maltacom in 2006.
In September this year, inflation stood at 0.81 per cent – showing a substantial decrease from the 3.42 per cent figure registered in September 2006. This rate is one of the lowest in the European Union and was mainly attributed to the decrease in the water and electricity surcharge to 50 per cent in 2007 compared to 67 per cent in 2006. This does not mean that certain prices have gone up. In fact, Malta like all other countries around the world, is suffering as a result of the grain and cereal crisis that has hit the international market. The relative index has shown a 3.1 per cent increase – the highest growth rate since 2002.
The mechanism which regulates cost of living adjustment gave a result of a 50 cents compensation, however, due to various factors, including the said grain crisis – the government was allocating another lira, to bring the COLA up to a total of Lm1.50 in anticipation of further increases in 2008.
The deficit as percentage of GDP stood at 2.68 per cent in 2006. The projected deficit for 2007 was 2.37 per cent, however, performance was better than anticipated and the year is expected to close with deficit standing at 2.11 per cent. In real terms, these figures stand at Lm58 million, Lm54 million and Lm48 million respectively.
Income tax, self-employed
and maternity leave
Consolidating the second part of the government’s two-year income tax break plan, which Finance Ministry Parliamentary Secretary Tonio Fenech yesterday described as a “prudent” strategy, income tax bands were raised for the second year running.
This year’s measure is to cost the government a total of Lm12 million, equal to the cost of last year’s tax breaks, meaning the two-year tax break plan has cost the government a total of Lm24 million.
Practically all income tax bands were raised, with the effect of income tax burdens having been lowered across the board for the second year in a row.
Thresholds for income tax exemptions have been raised from Lm4,500 to Lm4,894 (EUR11,400) for joint computations, and from Lm3,250 to Lm3,498 for single computations.
While tax bands were raised more or less along the same lines up the salary scale, the maximum 35 per cent income tax band was raised from Lm10,000 to Lm12,021 for joint computations and from Lm6,751 to Lm8,157 for single computations.
In terms of joint computations, overall income tax savings resulting from the two-year plan ranged from Lm30 for the lowest wage bracket to Lm584 for those earning Lm12,500 – the latter being broken down, as an example, into savings of Lm243 as a result of Budget 2007’s tax break and Lm341 from Budget 2008. Along similar lines, single computation taxpayers have, over the last two budgets, had their income tax bills reduced by between Lm61 and Lm385.
As a means of incentivising further self-employment, from 1 January the government has undertaken to pay social security contributions of self-employed individuals, provided they are at least 45 years of age and have been self-employed for at least the last five years.
A new and separate register for those looking for part-time work is also to be established, while the work registration system is to be altered with a view to incentivising jobseekers to take up temporary work in larger quantities.
As from 1 January, maternity leave will also be increased by one week to a total of 14 weeks. The measure is to be business neutral in that the government will be covering the extra week.
Social and health care
Social and health care measures have seen budgeting raised by Lm26 million for 2008, bringing the total budget for the sector in 2008 to Lm400 million.
Budget measures to stimulate economic growth
In 2007, Malta Enterprise approved 12 expansion projects with an investment of around Lm9 million and the creation of some 800 jobs. In addition, there was Lm13 million in investment to factory spaces – a combined total of 26,000 square metres at Hal Far and the Mosta Technopark.
In 2008, the government is set to implement a set of initiatives under the new Industry Promotion Act worth a total of EUR45 million to create more jobs. Lm2.3 million – co-financed by the EU, will be spent on upgrading SME industrial areas. A record amount of Lm16.8 million will be invested in the tourism sector with Lm10.5 million going to the MTA so as to support low cost carriers, advertising of Malta as a tourist destination and more support for tour operators.
Lm5 million will go towards improving the overall tourism product – investing in historical sites and beach projects, including Bugibba.
Lm1.5 million will be spent on life learning projects for unemployed. The government will also pay 75 per cent of minimum wage to facilitate temporary employment of three months to long term unemployed in an effort to give them on-the-job training within private companies. The government is also set to pay the first year of stamp duty for people over the age of 45 who have been unemployed for five years in an effort to encourage them to set up their own business.hose seeking part-time employment. In addition, more measures will be announced to encourage people to take up temporary work contracts. Another measure will see maternity leave increased by one week to a total of 14 weeks. The relevant stamp duty will be paid by the government.
The government also announced 20 separate measures to boost economic activity in Gozo. These included the set up of more ETC initiatives in Gozo, the construction of cruise liner facilities in Xlendi, conservation of various archaeological sites including the Ggantija temples, the rehabilitation of Qortin landfill, the setup of a training hotel in Qala, the construction of new secondary schools, upgrading the MCAST premises and Lm250k to be spent of afforestation and other green projects.
Education
The government has allocated Lm102 million to education – Lm9 million over the previous budget vote. There has already been extensive maintenance, extensions and modernisation work to 40 schools in Malta and Gozo. In addition a new school was built in Qormi and work to construct a new school in Gozo has started.
Next year, another Lm6 million will be spent through the Foundation for Tomorrow’s Schools. A new secondary school will also be built in Tal-Verdala in Cottonera while construction of a primary school in Pembroke will start in the coming weeks. The new college system has also been set up and the set up of three more this year will bring the total up to 10.
Work will also be stepped up to implement the recommendations contained in the Spiteri report for inclusive education for people with a disability. The quality of kindergartens will also be improved, as well as primary and secondary schools. After school services will also be boosted with the introduction of counselling, career guidance, psychological services and social work services.
Moreover, all computers will be replaced and interactive white boards and projectors will also be installed. By the year 2015, the government wants to see 85 per cent of over 16-year-olds continue their education. Lm5.3 million will be injected into the university, particularly with the set up of the ICT faculty. The government also plans to build new engineering, chemical and biology labs.
The Junior College will also be physically extended to accommodate the 3,000 students furthering their education there. The recurring vote for the UOM has increased by Lm1.6 million over last year to bring the total up to Lm12.9 million in 2008. The University campus master plan has also been concluded and the plans have been submitted to Mepa with Lm1million being allocated to commence work.
To complement this, Lm5.2 million is to be used for capital investment in MCAST. The recurrent vote has also been increased by Lm800,000 to bring it up to Lm5.2 million.
There will also be Lm1 million investment in partnership with private firms to offer training with diploma and Masters degrees from foreign universities.
Another Lm200,000 is also being allocated for Masters and PhDs abroad under the Government Scholarship Scheme while grants will also be given to Maltese students who are reading for their first university degree outside of the country.
Sport
The Malta sports council (Kunsill Malti ghall-iSport) will receive the sum of Lm1.5 million (EUR3.49 million) – Lm300,000 (EUR698,812 ) more than it received last year. Parents who send their children to attend sports related activities, for example football or basketball nurseries, will gain EUR100 in tax rebates. In addition, the government will except recognised sporting institutions from VAT, including any expense incurred in maintenance or upgrading of facilities. A nationwide campaign is also to be set up so youngsters, whatever their ability, can take part in school sports activities.
A scheme is also to be implemented whereby companies who support or sponsor athletes or sporting events will be given tax rebates. The government will also enter into partnership with the private sector so as to allow athletes the opportunity to continue to train for participation in sporting events while also honouring their work commitments.
Culture
The first measure announced in the budget to encourage cultural events was for VAT on venues to be reduced to five per cent from the current 18 per cent.
VAT will be totally removed on studies for furthering artistic talents as long as this is done at registered academic arts organisation according to the Arts Studies Accreditation Register. Lm100,000 is being set aside for the setting up of a Malta Film Fund for the production of local features.
Companies that make donations to heritage or arts organisations which are non-profit based will be entitled to reduce that amount from their taxable income. In addition, companies which award scholarships or grants to Maltese artists will also be entitled to reduce that amount from their tax dues – capped at Lm8,000.
Those in the civil service who work semi-professionally in the creative field will be allowed set unpaid leave in order to develop their talents further.
The National Orchestra is set to grow in size to a Philharmonic Orchestra by injecting an extra Lm130,000 to bring the total budget vote up to Lm420,000. In another measure, the government announced that the equivalent of 0.25 per cent of every capital or infrastructural project should be spent on arts or the needed infrastructure. Lm30,000 will be allocated to the National Youth Council so as to allow local youth councils the opportunity to set up cultural events.
Embellishing and looking after the environment
The government is strengthening the network of protected sites and implementing a management plan for them. It will also carry out tree-planting projects in four new public areas. The Salini will be rehabilitated with an investment of Lm4.5 million and the national park at Ta’ Qali will be enlarged.
Another rehabilitation project includes that of Maghtab, with an investment of EUR30 million. The capital expenditure on waste management will increase by Lm5 million.
The first phase of the restoration of the Sant’Antnin waste recycling plant will be completed by the beginning of next year, while the rest will be completed by mid-2008. An investment of Lm11 million for this project is co-financed by the EU.
After the opening of three centres for bulky refuse, another two centres will be opened in Luqa and Gozo.
The government has also applied an eco-contribution rebate for the schemes of package waste recovery. It is willing to consider the exemption of the eco-contribution for those operators operating under other schemes as long as these schemes meet the established criteria.
The government is also promoting environment-friendly procedures in the construction sector. Those constructions which respect the environment will be awarded, to promote pro-environment practices in the sector.
The government will also assist the commercial and industrial sectors with the launch of a subsidy scheme that is part of the energy audit expenditure, and the necessary investment for the implementation of the recommended measures.
Incentives promoting
cleaner energy use
During next year the government will implement further directives which consider the relation between economic activity and the environmental impact.
The government will also subsidise equipment for renewable sources of energy, extending the principle of electricity generated being transferred to the national grid with a compensation for commercial entities and a subsidy of for roof insulation, costing in all EUR5.4 million.
The government will also use EUR25 million of EU funds to encourage the use of equipment producing energy from renewable sources and other equipment which reduces the use of energy.
The government will increase the incentive for the purchase of electric cars. The price rebate for these cars will go up by 20 per cent while the maximum claimable rebate will double to Lm1,000. Apart from this, the government is planning reserved parking spaces for these cars.
The government is also continuing the scheme which encourages appliances that reduce energy use which, through co-financing with the EU, is expected to cost EUR1.3 million next year.
The government is also improving the scheme which contributes Lm100 on the purchase of solar water heaters through co-financing of EUR1.8 million with the EU.
Roads and urban
regeneration
The government this year will close the Lm9 million road construction programme that started last August. Once completed, the programme will have provided for the construction of 468 residential roads in 47 localities – bringing the tally of new residential roads to 850 since 2003.
Major flood water control works – aimed at providing relief to the areas of Birkirkara, Balzan, Lija and Msida – are to be undertaken over the coming budget year. An investment of EUR70 million, co-financed by the European Union, will see the first phase of the project kicking off.
Work on Xatt is-Sajjieda in Marsaxlokk is to begin – bringing to life the aspects of the traditional fishing village. Similar projects entering their second phase during the 2008 budget period include the promenades at Xghajra, that stretches from Qajjenza to Birzebbuga and another at Ghadira.
Historical monuments and buildings are also to be restored, while the recent funding for the restoration of balconies is also being extended.
Agriculture, fishing and
animal welfare
Budget 2008 is to inject EUR100 million into the development of the local agricultural chain, while a further EUR700,000 investment, co-financed by the EU, will be directed toward sustaining the local industry.
In terms of animal welfare, Lm150,000 will be provided for voluntary organisations working in the sector, while the government will continue to work with non-governmental organisations to implement an initiative aimed at controlling the number of abandoned animals on the streets. Also in the area, work is to begin at Ta’ Qali, where a modern facility for aftercare and boarding kennels is to be set up.
Children’s allowance reform
The government will double the Children’s Allowance for the second and successive offspring in order to match that for the first born. This measure will target 33,000 children. Families with children whose income is less than the minimum wage will benefit from a reduction of the minimum income for children’s allowance purposes. This measure will in turn target 13,000 children.
The minimum allowance will rise from Lm52 to Lm107 (EUR250) per annum, affecting 3,000 children.
The minimum payment of Lm107 (EUR250) will be given to all children, including 25,000 children who currently do not receive an allowance.
These measures equate to Lm5 million (EUR11.6 million) or 40 per cent more than in 2007.
Other measures in favour of the family
As of 1 January, government will adjust the maximum income for a person to qualify for a supplementary allowance
The fostering allowance will increase by Lm5 (EUR12) to Lm17 (EUR40) per week while the allowance for orphaned children will increase by Lm4.74 (EUR11) to Lm20 (EUR47) per week.
The government will also waive with regard to children attending private kindergartens, up to a maximum of Lm429 (EUR1,000) a year.
With immediate effect, surviving spouses will be exempt from paying the causa mortis stamp duty on the part of inheritance that pertains to their residential houses, as long as the house is not sold before the demise of the surviving spouse.
Housing
Government will allocate Lm500,000 in order to subsidise up to one per cent on the base rate established by the Central Bank if this is higher than 3.75 per cent for a period of 10 years after the purchase of a first residence valued at not more than Lm50,000.
With immediate effect, the present rate of 3.5 per cent stamp duty on the first Lm30,000 spent on a personal residence will be extended to the first Lm50,000 spent on the first residence.
The stamp duty on the transfer of one property from parents to children in order to be used as a personal residence will be reduced once by 1.5 per cent to 3.5 per cent on that part that is currently being taxed at five per cent.
The third issue of the Shared Ownership Scheme by the Housing Authority is currently being prepared. Through this scheme, 333 apartments with a commercial value of Lm14.5 million will be made available. During the coming year, the authority will also invest Lm5.5 million in the construction of other apartments
The Housing Authority will benefit from an allocation of Lm500,000 in order to improve and extend its Equity Share Scheme for the purchase of the first house. This translates into a subsidy of up to Lm14,000 of the value of a finished house or Lm10,000 of the value of a shell unit with a maximum value of Lm50,000.
Pensioners and the elderly
As from 1 January, the cost of living adjustment will be awarded to all pensioners.
Government said that the problem regarding service pensions, which is quantified to Lm17 million is too big a shock to be absorbed by the country at once. However, it said that the issue will be tackled by ignoring Lm200 from the services pension when calculating the social security pension.
Pensioners will be allowed to continue working and will not have to relinquish any of their pensions.
Families and pensioners who pay for residential services may benefit from a Lm858.60 (EUR2,000) reduction from their taxable revenue. The government’s allocation for the health sector will increase by Lm6 million /EUR14 million next year. People waiting to undergo operations will be given special attention, as shall the fight against cancer.
A new 280-bed rehabilitation facility will be built in Luqa. This Lm12 million / EUR28 million project will be co-financed by the EU. This means that the number of beds at the new facility will be five times the number of beds at Zammit Clapp Hospital, which will be turned into a cancer services facility.
This will provide for an increase in the number of beds in oncology, as well as additional and improved beds and equipment. In a move that has long been anticipated, the government will next year embark on a National Breast Screening Plan. Although Malta does not have the necessary specialists, the state of the art equipment at the Mater Dei Hospital will allow for digital images to be sent abroad for analysis by specialists, without the need for Maltese women to be sent abroad.
People with disabilities
People with severe disabilities requiring personal assistants will be exempt from payment of ETC permits if their assistant is a foreigner. They will also be exempt from payment of social security benefits owed for the employment of their assistants.
The allowance for children with disabilities will be increased from a minimum rate of Lm5 / EUR11.65 to a maximum of Lm7 / EUR16.31. More than 600 families will benefit from this measure.
Early next year, Agenzija Sapport will open a community residence for people with disabilities in the Cottonera area.
The government will also contribute an additional Lm20,000 / EUR46,587 to the national commission for persons with disabilities (KNPD), so that more people will be able to benefit from the commission’s special assistance services.
As from 1 January next year, those employing people with disabilities registered with ETC will be exempt from paying social security contributions during the first three years of employment.