The PN-proposed income tax cuts might have serious repercussions on the economy as the government would lose an estimated e125,013,934 said AD spokesman Edward Fenech.

Speaking yesterday about the PN’s electoral promise of reducing the highest income tax rate by 10 per cent, Mr Fenech said PM Lawrence Gonzi might either not be well informed on his promise or was hiding facts from the public. Dr Gonzi said that the tax cuts would amount to e46 million.

He explained that total repercussions of the proposal would result in a decrease in government revenue from company tax as more self-employed would be keen to declare less profits.

Mr Fenech said there are only a couple of hundred people who declare income in excess of e60,000, therefore, he said, the PN was in truth proposing to lower the tax rate ceiling of the country.

He said that the self-employed withdraw their salaries from their businesses and any excess revenue is registered as profits.

If the government were to keep taxing companies at 35 per cent from their first euro, he said, business owners would rather declare no profits, transfer them to their salary and pay tax at 25 per cent.

Mr Fenech said he based his workings on a PQ which held that tax collected on the tax bracket in question totalled at Lm85,153,554. He estimated that the by reducing taxation by 10 per cent, the government would be losing Lm30,590,577 as well as an estimated Lm6million if the PN were to live up to its promise to further shift tax bands.

This brings the total to tax revenue from individuals lost to Lm36,590,577. The AD spokesman moved a step further by estimating that the government would be losing out a further Lm17,077,905 from company tax, thus bringing the grand total to e125,013,934 (Lm53,668,482).

In order to cover such an expense, the economy would need to grow by at least 7.5 per cent, akin to post communist bloc emerging countries.