The hallmark of a successful administration is its ability to collect taxes efficiently and invest these revenues wisely. The balance that must be constantly maintained in this exercise is probably the most important ingredient for sustaining a healthy and thriving economy. Of course this becomes an even meaner feat if trade, investment and business are threatened by external factors such as recessions in the countries of our trading partners. Achieving this balance has been one of the main successful strategies the present Maltese administration has continually strived for over the last four years.
A recent EU report entitled “Taxation Trends in the European Union” revealed some interesting statistics that confirm our government’s commitment to establish and maintain this tax balance in a positive manner. The main thrust of this report confirms that as a country Malta remains one of the least taxed countries in the European Union.
The report makes a valid case that proves that Malta continues to tax employed, self-employed and companies in a prudent manner that avoids destabilising a growing economy in particularly difficult times. At the core of many of our European partners’ woes is a continued barrage of increasing taxes that have jammed growth, stifled employment and suffocated forward looking investment. At the heart of this strategy remains the pressing deficits that have been principal in EU countries in adopting an ever more austere approach in government finances with its attendant and obvious consequences.
Malta’s employed are taxed, on average, at a rate of around 22 per cent of their income. This figure is in stark contrast to the EU average that currently stands at around 33.4 per cent. Furthermore, ongoing reforms introduced in the last budget have reclassified earning bands with special attention focused on particular groups such as women, families and parents with young children. The report reveals that the cumulative tax paid by employees and employers, both in terms of income tax and national insurance, remain lowest among the EU nations where the average rises to around 40 per cent of pay. This once again contrasts with higher tax averages in Italy (42.6 per cent), Belgium (42.5 per cent), France (41 per cent), and Austria (40.5 per cent.)
The report also considers a number of additional taxes principally VAT, annual land taxes and local and council taxes. In the case of VAT, Malta so far remains the third least taxed country across the EU 27. When all these taxes are considered together the study confirms that Maltese citizens are the least taxed as compared to their European partners. This difference is most marked especially when compared to our Mediterranean neighbours.
As we all know, Malta does not have any land or local council taxes. In most countries citizens are subject to annual taxes related to their homes or any other property that they might own. So far, we do not pay extra taxes for services rendered by our respective local councils.
In terms of VAT, the report underlines the ever increasing percentage levied on products and services through VAT collection. This has been particularly pronounced in the last four years when six countries increased their VAT in 2009. A further eight countries increased their VAT receipts in 2010. This has not happened in Malta and it remains the third least taxed country in terms of VAT rates. Furthermore, Malta enjoys a zero rated VAT on a substantial number of essential products like food and medicines. The effective result of all this translates into more disposable income for everyone, which in turn encourages more consumption that stimulates business and more jobs in the private sector.
Throughout this legislature, this government has introduced a series of measures that have enabled many more individuals not only to participate in the labour market but encouraged them to be productive without overtaxing their efforts. Excessive taxation would have discouraged many from returning to their workplace or begin working in the first place.
One of the most important measures was aimed at a more sophisticated income tax regime. Measures were introduced that benefited working mothers as well as returning mothers absent from the labour market for five years. Moratoriums on tax were introduced in these cases and have proved highly successful. Further tax breaks for the family included sports and cultural activities!
This year we have also seen tax breaks beefed up for parents who use childcare centres as well as those who have children attending independent private schools. Other measures were introduced that aid students and pensioners. A massive programme was also introduced that singled out the efforts of small and medium sized businesses with income tax relief schemes and facilities of funds in the form of microcredit. These efforts have translated into a significant number of jobs being created in the economy thanks to these efforts to stimulate the internal economy.
All these measures have helped our country stave off the persistent threats to our economy at a time where much stronger and bigger nations are buckling under the weight of double dip recessions and rising unemployment. The ramifications for this will probably be felt for a long time to come. This local strategy has been a focused and purposeful one that has ensured work for a growing workforce that becomes more specialised as the years go by.
We are now inching closer to a general election and a possible change in policy and administration. At present, the Opposition is promising all sorts of goodies to all and sundry. These electoral goodies will have to be ultimately financed through new streams of revenues. (further taxes!) So far we know precious little about how these promises are to be financed! Hopefully, these electoral pledges will not overturn Malta’s number one priority... jobs and prosperity!
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