The Budget presented by Dr Gonzi is so well balanced and fine-tuned that it manages to harmonise economic growth and social policy.

Modern budgets presented by Nationalist governments have become a serious economic and accounting exercise, which inspire and stimulate businesses to grow and succeed, and at the same time distribute the wealth generated with a sense of social justice.

The success obtained by Lawrence Gonzi’s government is so massive that it has pushed new Labour, led by an old leader, into a tight corner. So social are the PN’s measures that there is the probability that, in order to do one better than the Nationalist Party, Labour will have to resort to the extreme socialism of old. That is, it will have to introduce such measures where it will pamper and spoil society.

The problem with extreme socialism is that the State intervenes to manage society as opposed to the Christian Democratic policies, which offer an individual the opportunity to decide one’s lifestyle.

Decrease of 50 per cent in surcharge

At face value, the removal of 50 per cent of the fuel surcharge sounds interesting and inviting, even if to date Alfred Sant never said 50 per cent of what. However, this is a dangerous measure that should be discouraged altogether.

Why was the surcharge introduced in the first place? In January 1996 the price of a barrel of oil was US$18. Since then, the price has rocketed to nearly $100 per barrel!

The government was of the opinion that, due to the continuous fluctuations in the oil price, it made more sense to reflect them in the form of a surcharge rather than continually changing the base price.

It must be noted that 27,000 families on a low income were exempted from the surcharge, although the government is already subsidising a handsome part of the surcharge. Some businesses were also given preferential rates and subsidies.

If the surcharge were to be reduced by 50 per cent, it would mean that the State, that is the people in general, would be paying for one’s consumption in the form of income tax. Is this fair? Is it fair that someone who is careful and takes active measures to reduce the fuel bill has to pay for the bills of people who with their lifestyle consume a great deal of power?

Just imagine a household that has several air-conditioners installed, freezers, electric appliances, a swimming pool and uplighters in its garden and façade. Should individuals whose consumption is normal, or a household that is very careful in keeping consumption as low as possible, finance the consumption of such households?

The main problem with the reduction of the surcharge by 50 per cent is that it will not encourage high-energy consumers to take drastic action to reduce their power consumption. Such a measure will only help to alleviate the expense of high-income earners and careless people.

I am not sure whether the proposed reduction in the surcharge will apply to certain businesses as well. However, let us say that this reduction is given to restaurants as well. Would it be fair for individuals who do not frequent restaurants at all or not that often, to finance the bill of people who frequent restaurants regularly? Certainly not.

I firmly believe that the surcharge, although a burden to one and all, including myself, is a fair measure. It is a situation of “consume and pay, economise and save”.

Removing 50 per cent of the fuel surcharge is like giving young children too much pocket money. It certainly makes children very happy in the short term. However, it is a guarantee that the children will be ruined for life. It is much better to give a child sufficient pocket money and invest the rest in their education and future well being.

Tax on overtime

Without any shadow of a doubt, should the tax on overtime be removed it will cost the State several million liri since it will inevitably give rise to rampant abuse, both by the employer as well as employees, who will start splitting their gross wage between a lower gross wage and overtime.

For example, an individual who currently earns say a gross annual income of Lm6,220 and is taxed applying the “single” tax rates, currently pays Lm518 in Income Tax and Lm1,200 in National Insurance contributions (Lm600 paid by the employee and Lm600 paid by the employer). Since the tax bands have been widened, as from 2008 this individual’s income tax will decrease by Lm89 to Lm429.

Should Dr Sant’s proposal come into effect during, say 2008, the State stands to lose a further income of Lm973 from an individual who earns Lm6,220 per annum.

The tax charge of Lm429 may be avoided totally should the employer and employee agree to split this wage between Lm3,278 earned from full time employment and Lm2,942 earned as overtime and statutory bonuses. Moreover, since National Insurance contributions are paid on the gross wage only, this measure will also affect the National Insurance contributions due.

Therefore, in the example given above, the State would lose a further Lm544 from National Insurance contributions (Lm272 paid by the employer and Lm272 paid by the employee). Can the State afford such a high reduction in income? Doesn’t this sound like another of Dr Sant’s dangerous political gimmicks?

Part-time work and the self-employed

Overtime is carried out by an individual in his normal place of work, that is with his current employer. Will this tax break be offered to people who currently do part-time work and are paying 15 per cent withholding tax?

How will these tax breaks affect the self-employed? The self-employed are already at a disadvantage because they cannot benefit from the 15 per cent withholding tax, a measure that may cost up to Lm600 per annum in Income Tax. Will there be some form of tax break for the self-employed?

In an attempt to increase productivity, the French government is proposing that people who work more than the current minimum of 35 hours per week be offered a tax break on the extra hours worked.

I wonder whether Dr Sant was inspired by this measure when he suggested the removal of Income Tax from overtime. However, the real problem is that the two measures are definitely not related and the end result is totally different.