In 2009 the government budgeted for a e98.8 million deficit. However the deficit shot up to e258 million, or e159.2 million more than actually budgeted. This put up the deficit to 3.8 per cent of Gross Domestic Product.

Going through the Financial Estimates 2010, revised estimates for tax revenue stand at e2,253.7 million as against an approved estimate of e2,238.3 million – a marginal shortfall of e15.4 million, with increases in revenue from income tax, social security, licences, taxes and fines and decreases in customs and excise duties and valued added tax. The major shortfalls are in the non-tax revenue items under all heads of revenue, except from the Central Bank of Malta. The worst shortfall in revenue is from grants which went down from an estimated e125.4 million to a revised estimate of e80.3 million – a shortfall of e45.1 million.

In this year’s budget speech, the Finance minister stated that the fiscal policy of this government is not that of increasing the burden of taxation. He said that on the contrary, in the past years, and particularly in the last three budgets the present government launched a substantial income tax reform, that is leaving e152 million yearly in the pockets of the workers and business.

So how is it that if the workers, pensioners and other categories of the population are paying less in income tax, the government is year after year earning more from this source of revenue? The answer can be found in the National Statistics Office news release 184/2009 of 19 October. In this news release about Tax Revenues one comes across a very interesting table relating to the tax burden structure from 2005 to 2008. A part of this table relates to direct taxes and gives the percentages of direct taxes to total tax revenue. The percentage of direct taxes went up from 12.1 per cent in 2005 to 13.3 per cent in 2008, an increase of 1.2 per cent. But personal income tax went down from 6.3 per cent in 2005 to 5.8 per cent in 2008, a drop of 0.5 per cent, reflecting the reform in income tax.

So who is paying the extra millions that government is collecting from income tax? Going through the table about direct taxes there is the corporate income tax, taxes paid by companies. Taxes collected from this source went up from 4.5 per cent in 2005 to 6.8 per cent in 2008, an increase of 2.3 per cent which is nearly double that the government collected less from personal income tax. In monetary terms revenue for corporate income tax went up from e214.1 million to e385.7 million, an increase of e171.6 million.

In this year’s budget speech the government equates the measures taken to reduce personal income tax with our country’s ability to overcome the international economic and financial crisis. The fact that in this year’s budget there are no additional taxes is very encouraging. Other countries such as Spain have announced added tax burdens, whilst other countries have even introduced measures to lower wages. Spain, with a total taxation to revenue of 37.9 per cent in 2007 (ours stood at 36.1 per cent) is being burdened with an extra e9 billion taxes by the Zapatero Socialist government. Besides here in Malta everybody – employees and pensioners alike – are to receive a cost of living increase of e5.82 weekly.

Paying taxes is a civic duty. Paying less taxes encourages consumer spending and thus contributes towards economic growth.

Joe M. Zahra

By email