For two long years Alternattiva Demokratika has been proposing that the top rate of income tax should be reduced from 35 per cent to 30 per cent. We made this proposal for Budget 2007 as well as for Budget 2008. The government consistently ignored this proposal and I assumed that they were not in agreement with us. I could never understand why. I have sometimes suspected that the PN will never adopt any of our proposals for fear of giving us any credibility, irrespective of the validity of our politics. Such is the miserable political state of play in this country.

The government’s pig-headedness has not derailed us. We did not backtrack on our tax reduction proposal. In fact we chose it as a “priority proposal” in the document we published last week in which we declared the political priorities we would discuss in coalition negotiations after the election. Specifically, our proposal states that the top rate of income tax on both individuals and companies should be reduced from 35 per cent to 30 per cent. The rationale for our proposal is based on two factors. The first is that a reduction in the top rate of income tax would act as a disincentive to the rampant tax evasion still present in Malta – a lower rate reduces the incentive to evade tax. The second factor is that Maltese companies (that also pay tax at 35 per cent) are effectively very heavily taxed compared to their European competitors. Just to give a few examples, Ireland has a company tax rate of 12.5 per cent, Luxembourg 29 per cent and the UK just 30 per cent. France, normally considered a heavily taxed country, taxes companies at 33 per cent. All less than Malta, where government starts to tax even the smallest companies at 35 per cent. The case for reform is overwhelming; therefore we decided that in any coalition talks this would be a priority area. In addition, we have proposed that any shortfall in government revenue can be compensated by an increase in the tax rate on banks from 35 per cent to 40 per cent.

Less than 24 hours into the electoral campaign, in a stage-managed press conference, Prime Minister Gonzi adopted, to a significant measure, our proposal for a tax reduction. Unlike Labour, I will not denigrate Dr Gonzi’s proposal. How could I? AD has actually been proposing the same thing for two years, during which the government played deaf. What happened this week is just one example of the way coalition politics will work after the next election. The essence of coalition politics is that, in the interest of the country, political adversaries can discover common ground on which to move the country forward rather than expend energy on arguing their differences. It is the brand of politics that will catapult Malta and Gozo into the 21st century.

Despite the similarity of Dr Gonzi’s proposal to ours, there are at least two rather significant differences that need to be thrashed out. The first is the fact that Dr Gonzi’s tax proposal does not apply to companies, therefore the disadvantages Maltese companies face with a comparatively high tax rate will remain unless Dr Gonzi’s adopts our proposal more fully. The second matter that needs clarification is how Dr Gonzi’s proposal will be financed. If Dr Gonzi does not explain himself then his proposal will attract the same level of incredulity as the proposal made by Labour in 2003 to award a two-month tax break.

We welcome promises of tax reductions but before we applaud we expect the Prime Minister to declare and publish with costings, how much these tax reductions will cost and how they will be paid for. Saying that they will be financed simply from increased economic activity alone is political wishful thinking not economics. I have calculated that in order to finance this tax cut, the economy must grow at least at eight per cent.

I have some serious doubts as to whether Dr Gonzi’s proposals are affordable. Working from the little information the government makes available, my calculations indicate that these tax cuts may cost as much as 125 million euros. Dr Gonzi is stating that they will cost only 47 million euros; I disagree. Only when he publishes his costings will we know the true cost of his proposed tax cut. I await his explanation. In a coalition it would be standard practice to present workings when making such serious proposals.

With a single party government we are likely to get either the irresponsible slashing of the surcharge or an un-costed last minute reduction in income tax. With a coalition government we will get sensible government. What will you choose?

Edward P. Fenech is spokesperson on Finance, the Economy and Tourism of Alternattiva Demokratika – The Green Party