Monday’s budget will not include any tax hikes, but the official one in October could very well do, and the same could happen in the next five or six years, government sources have told The Malta Independent on Sunday.
The government, they said, may have to increase taxes to be able to pay back the millions it is getting from the European Union as Covid-19 aid as well as to be able to repay the loans it took out to finance a €2 billion economic recovery package.
Last week, the EU announced a €750 billion Covid-19 economic recovery package. Malta is set to be given around €1 billion, of which €350 million will be in grants and the rest in loans.
Finance Minister Edward Scicluna had a lukewarm reaction to the announcement, warning that this could spell trouble for Malta’s fight against tax harmonisation.
“It is good fruit, but like a prickly pear it must be handled with care,” Scicluna had told Parliament.
The issue for Malta, he said, was not only how much would be allocated for grants and loans, but how this money would be repaid. “What is peculiar in this situation is that those in need of money do not want further loans but cash,” he said. “How is this money going to get paid back?” he questioned.
Scicluna warned against getting burdened with unsustainable debts which could lead to a situation whereby fresh loans would have to be sought to pay older ones.
In March, the government had unveiled a package worth almost €2 billion to help sustain jobs across several sectors that were hit by the pandemic. Prime Minister Robert Abela had said that the government had borrowed money so as not to spend its entire ‘war chest’ and cripple public finances. The government says the economic packages has saved tens of thousands of jobs.
The government will tomorrow present a ‘multi-million’ budget which, according to Prime Minister Robert Abela, will not take back anything from the money given out to businesses to be able to retain their employees. The measures that will be announced tomorrow, Abela said, will incentivise investment and include “great incentives the like of which the country has never seen before.”
But sources said that, while tomorrow’s budget will not include any tax increases, the same cannot be said for the official budget in October. “The government will need to raise money to be able to pay back the millions we’re getting from the EU in pandemic aid and also to repay the loans it took out to finance the recovery package. While the PM has said that businesses will not be asked to pay the money back, the government will need to find ways to repay its debts.”
The government will also seek to raise funds through more bond and stock issues.
“The effects of Covid-19 on the economy will be felt for years to come. This is something the entire world will go through, not just us. As a result, further tax increases could be implemented over the coming five or six years,” the source said.
Another source said the Cabinet has also been mulling the idea of calling a snap election, before October. While Abela has ruled out the idea of an early election, which was being peddled by the Opposition, things could change. “A week is a long time in politics,” the source continued.
The source explained that, while it is highly unlikely, the government could go for an early election to seek a fresh five-year mandate before these tax increases are announced.