The Malta Independent 15 October 2021, Friday

Budget 2022 reactions: Some wanted more, others expected less

Tuesday, 12 October 2021, 07:21 Last update: about 3 days ago

As expected, constituted bodies gave their immediate reaction to the budget speech.

Overall, there was positive feedback, particularly on social measures and others related to employment.

But it was also pointed out that the budget failed to address the concerns related to Malta's greylisting by the Financial Action Task Force, as well as the effects on the economy of the Covid-19 pandemic.

The following are the reactions:

 

A budget which acknowledges present realities – Chamber of Commerce

The Malta Chamber of Commerce, Enterprise and Industry welcomes this year’s budget. The Chamber recognizes the challenging fiscal position in which the Minister of Finance formulated the Budget.

The Chamber notes that in the prevailing economic climate in which operational costs are increasing at a fast pace for all business operators, the Government took the decision not to place any further fiscal burdens or costs on the private sector. This includes the introduction of a new mechanism which is completely independent from the existing Cost of Living Adjustment (COLA) framework to assist vulnerable families, whose cost will be borne by Government rather than being passed onto the private sector. This is a positive step in order not to allow an inflationary spiral across the board.

We must also note that the myriad of social measures aimed at pensioners and other vulnerable groups are positive as it is felt that these cohorts retain their purchasing power in an inflationary economy.

The Malta Chamber takes note that several of its key proposals have been taken up by Government. These particularly included measures which pave the way in terms of economic recovery.

These include amongst others:

    Schemes to incentivise productive work and shift works as well as reduced tax rates for part-time and overtime work;

    Zero tax on pensionable Income for those in employment beyond retirement age;

    Zero tax on the Re-Investment of profits for business operators;

    The strong emphasis on green investments in terms of mobility and construction as well as in favour of heritage buildings and UCA properties;

    Better planning through the introduction of an aesthetics policy and comprehensive development;

    Assistance for companies to offer training to their employees;

    More funding support to help commercialise technological products;

    Incentives for businesses investing in innovation.

Nonetheless, the Malta Chamber feels that this year’s budget did not effectively address measures aimed at the recovery of the worst hit sectors such as tourism related segments.  It also notes the rather vague references to digitalisation incentives for the private sector.

The Chamber strongly believes that the Government’s short to medium terms objectives of achieving a deficit rate of 5.6% looks overly optimistic.

The Malta Chamber notes that the Government is forecasting the highest increase in revenue to originate from VAT receipts with estimates higher than the 2019 VAT income.  This assumes continued growth in consumption and rigorous enforcement of VAT dues as well as the collection of deferred VAT payments. The Malta Chamber fully supports the Government’s renewed commitment towards fiscal morality.

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 A pre-election budget built on strong assumptions – MEA

 

The National Budget for 2022 has the characteristics of a pre-election budget which commits itself to increased expenditure, strengthening the social safety net whilst softening the tax burden in certain aspects, but which provides less clarity on the revenue side of the equation, the Malta Employers Association said. It is based on a strategy to generate economic growth through an expansion in domestic demand in the short-term through tweaking of numerous social benefits and benefits to pensioners which will increase the disposable income of vulnerable groups.

Whilst this is socially desirable and just, it may not provide guarantees for long-term economic sustainability.  In anticipation of global inflation, government is also initiating a dialogue on a revision of the COLA mechanism to help low-income groups without burdening businesses with additional labour costs. Echoing the theme of MEA’s 2021 national conference, the budget also aims to address the need to achieve economic growth as well as economic development through an upgrading of Malta’s human resource, improved quality of life, and continued efforts to make work pay through tax deductions on part-time work and overtime. This is a commendable strategy, but has long been on the agenda of successive administrations without any significant results. The National Labour Market Policy has to translate into tangible actions that transform our labour force.  

It is positive that government fiscal measures have been successful in keeping the economy running without loss of jobs, mostly through the wage supplements. Although the expenditure on such assistance will be drastically reduced during 2022, it will nonetheless be a major challenge for government to reduce the budget deficit to the targeted levels, given that the fiscal deficit in 2021 is expected to be in excess of 12% of GDP, even if the economy manages to grow at a forecasted rate of 6.5%.

Government has seemingly taken note of the criticism that it has received on environmental issues, and attempts to address them through various measures and projects announced in the budget, but there is no tangible commitment to steer away the economy from excessive construction to other sectors. 

This is an ambitious budget that is built on strong assumptions and optimistic forecasts. The impact of inflation, the recovery of tourism to pre-Covid levels, together with how fast Malta can be removed from the FATF grey listing are amongst the variables that will determine the sustainability of our economy and public finances. The grey-listing certainly poses a threat to the financial services and gaming sectors, the two sectors with the highest value added in the economy. Tourism figures in September are still 45% of pre-Covid levels, while competing tourism destinations in the Mediterranean have recovered faster than Malta.

The issues prevalent in the logistics sector also need to be addressed more concretely, given the global situation and its impact on importation and manufacturing. Overall, the budget is reliant on short term social measures, but is not as strong in addressing long-term structural issues needed to ensure the long-term socio-economic development of our society, the MEA said.  

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Rich on social measures, poor on reputation – UHM

In its first reaction to the 2022 Budget, UĦM Voice of the Workers describes this Budget as being rich on social measures while making less emphasis on Government’s long-term economic vision and poor on the efforts to restore Malta’s reputation. UĦM welcomes the decision to introduce the employment contracts portal despite having already been mentioned in the 2016 Budget speech. This should be a step forward in the fight against precarious employment.

The union calls on the Government to implement the next crucial measure in this fight, which is the mandatory union membership for low-income workers. UĦM welcomes the decision that the bus service will be free of charge for all tal-linja card holders and notes that it had floated this idea two years ago. Another UĦM proposal announced by the Minister of Finance which has been taken on board is to roll out incentives for the rehabilitation of properties that have been vacant for many years.

The union also expresses its satisfaction that a proposal it had made for the 2017 Budget - that more families benefit from the in-work benefit – is going to be implemented. It also welcomes the proposals for the tax reduction on part-time work from 15% to 10%, the reduction in the tax on overtime, and the Sunday premium allowance for employees on the books of contractors engaged by Government entities.

UĦM hopes that these proposals, which it has been advocating for a long time, will be implemented in full and within a short time as promised. UĦM expresses its disappointment that for another year Government has again increased the allocation to Steward Health Care from €50 million in 2021 to €70 million in 2022 – an expenditure which does not include workers' wages. The Budget speech was weak in terms of the Government’s vision to attract new economic sectors to Malta which do not depend on foreign workers and cheap labour. UĦM is concerned that the Budget is heavily dependent on consumption and Government investment.

The Maltese economy needs to diversify to reduce its dependency on the construction industry. Regarding the cost of living, the UĦM warns that the increase of €1.75 per week does not reflect the sharp rise in the prices of essential products. It therefore calls on the Government to begin discussions on a new mechanism for low-income earners as soon as possible, as well as the process of reviewing COLA.

Regarding pensioners, UĦM welcomes the announced increases in the Budget and the start of a process which in five years’ time will mean that anybody working past retirement age will only be taxed on the income from employment and consequently pay less tax. UĦM Voice of the Workers feels that this Budget is focusing on social measures but was expecting a greater commitment in favour of Government’s plan to get off the greylist and ultimately restore Malta’s reputation.

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An investment in quality of life - MHRA

The Malta Hotels and Restaurants Association (MHRA) welcomes the budget as a clear investment in the quality of life. Indeed, MHRA notes with satisfaction various incentives addressing people, the environment and prosperity as was advocated in the Association’s pre-budget proposals.

Work benefits rewarding productivity, tax reduction on part-time and overtime rates, the extension of free childcare services over and above normal office hours, free public transportation to Maltese residents, training opportunities to address skills gaps and improved policies and procedures to recruit employees are clear measures which support the tourism and hospitality sector. These measures combined address one of the major challenges facing our sector amongst others in the economy.

From an environmental perspective, MHRA notes incentives which encourage improved management of energy consumption, research and development leading to green operations across the tourism sector, conservation and restoration incentives and the embellishment of tourism zones as steps in the right direction.

The budget’s focus on sustainable development with special emphasis on fiscal incentives for re-investment in business, and on connectivity and marketing of the tourism product are also commended by MHRA. Indeed, MHRA lauds the increase in the budgets for the Malta Tourism Authority and various government entities which are tasked with the upkeep and cleanliness of public spaces. 

MHRA President Tony Zahra states that, “This budget is evidence of how well Malta was managed during the pandemic not only in safeguarding the health of our people but also in generating enough reserves to sustain business operations during unprecedented economic conditions and significantly to take forward the sustainable development of our economy and improve the quality of life for all our people - the real protagonists of a successful Malta.”

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More money in people’s pockets, but ignores effect of greylisting – Chamber of SMEs

The Malta Chamber of SMEs has noted a number of positive initiatives that will aim at pushing both businesses and workers forward. Addressing Malta’s human resources crises, the Budget will result in rewards for those choosing to work more through in-work benefits and tax incentives. At the same time the Budget acknowledges the support businesses require following the pandemic in making investments.

The incentives welcome includes allowing the transferability of capital allowances, tax benefits on reinvested profits, financing schemes and various other schemes that encourage sustainability and moving towards clean energy amongst others. Incentives in favour of green transport, electrification of vehicles and sustainability of buildings show also a clear commitment aimed at making Malta a cleaner and more attractive country for locals and tourists alike.

Most of these incentives come out of discussions directly held with the Malta Chamber of SMEs in support of the many sectors interested in moving towards carbon neutrality. The SME Chamber is particularly pleased to see its own proposal being included in the Budget, aimed at alleviating the heavy burden of the international transport costs by subsidising the rents on storage facilities. The Malta Chamber of SMEs believes that it is not easy to find a solution for this complicated issue however Malta’s particular circumstances must be taken into consideration and businesses supported accordingly.

Other support structures will be necessary to further alleviate this problem, but this is surely a very important first step. The Budget further explains that work to get Malta out of the Greylisting status is well underway and is expected to yield the desired results. It however falls short in addressing how this Greylisting is affecting the backbone of our economy, Maltese SMEs. During Budget discussions the Malta Chamber of SMEs has emphasised on the importance to assess the additional costs and burdens that are being lumped on SMEs by the various financial and regulatory institutions without a riskbased or proportionality driven approach. Businesses are being punished on a daily basis and it is not acceptable that the greylisting strategy comes at the pure expense of Maltese SMEs.

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The minimum wage issue remains unsolved – ADPD

ADPD – The Green Party Chairperson Carmel Cacopardo, in the party's first comments on the 2022 Budget said that a substantial part of the budget is a list of benefits, some new and others a continuation of those already announced in past years.

He said that the Budget, however, contains a number of contradictions. "It is good that the Government will invest heavily in an afforestation project in the Inwadar Park limits of Marsaskala, an area that the Government recently wanted to develop into a University. The Government has been forced by public opinion to change these plans. On the one hand however, Government will encourage afforestation but on the other it plans to ruin Marsaskala Bay by converting it into a yacht marina."

"It is all well and good to plan improvements in industrial areas, something which is referred to year on year. But it doesn't make sense for the scarce industrial land in Ħal Far to be taken up for car racing.”

"It is good that various measures have been announced to aid farmers, but then why didn't Government also help farmers when roads were planned in farmland in Attard? Are farmers only ‘helped’ on the eve of an election?”

"This Budget, while offering various benefits, does not directly address the outstanding problem of a decent minimum wage. Repeated Caritas studies show that the minimum wage must be substantially increased to become a decent living wage which lifts people out of poverty. Earlier this year the European Union launched a draft Directive for consultation on establishing a uniform way in which the minimum wage should be calculated throughout the Union. An analysis of this Directive leads to similar conclusions reached by Caritas in Malta. The minimum wage needs to rise substantially. The Maltese Government is opposing all this."

"If the government believes what it says it should change course and see to it that the minimum wage is one on which people can live decently. Once again, the budget has failed to solve the issue of the working-poor."

"Finally, we are pleased that the Minister for Finance said that he will not tolerate delays in the payment of taxes. Is he going to lead by example and start by ensuring that the Labour Party’s and the Nationalist Party’s private companies, which have millions of Euros in arrears pay their dues? Can we really and truly believe him when says that he will not tolerate delays from anyone?”

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Making Malta more attractive - ACE

The Association of Catering Establishments feels that the Budget announced by the Minister for Finance, Clyde Caruana is a positive one which stimulates discussion and consultation for the implementation of further measures in the months to come.

The ACE welcomes the important increases announced in pensions and students' stipends as this will inevitably positively impact on the catering sector. The ACE also feels that Budget 2022 encourages more work through overtime and part time which will eventually address in part the current human capital shortages the catering sector is currently facing. The in-work benefit is also a positive measure that assists the human capital issues within the sector. Nevertheless, the ACE feels that more action is required in order to address the problem as well as to ensure the government reaches its tourism sector targets.

Likewise, the ACE welcomes the investment in the education sector. This will certainly help the current human resource shortage. Nevertheless, the ACE hopes that specific measures will be introduced to urgently address the human capital challenge the catering sector is currently facing.

The ACE also welcomes the tax incentive for investment through the acceleration of Capital Allowances. However, the ACE would have preferred if entrepreneurs were offered the choice on the allocation of such allowance against current taxes or do a carry back on past taxes. In spite of the fact that the Minister seems to have been categoric in the repayment of overdue taxes , the ACE feels that the budget speech leaves room for agreements for enterprises who have found themselves in difficulty.

The ACE also commends the environment and infrastructure measures announced as these will ensure a more attractive Malta for tourists and also to ensure a better quality of life for Maltese.

The ACE feels that the incentives announced with respect to alternative energy may this time round be more customized by industry rather a one blanket fits all solutions.

Other measures will encourage more mobility in a clean manner such as the free public transport and the incentives for various emission free vehicles.

 

The ACE believes the Budget 2022 is a positive one which focusses on key priorities whilst ensuring environmental, educational and economic sustainability. The ACE looks forward to the consultation processes mentioned by the Minister to ensure the catering sector's needs are addressed.

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More attention needed for Gozo – Business Chamber

The Gozo Business Chamber notes the measures included in this year’s budget. Overall this maintains a good balance between the social sphere and the needs of businesses within the strategic direction of sustainability.

Since the budget is adopting a horizontal approach it is important that all the social services that are being delineated in the budget, including the services for people with disabilities are offered in Gozo as well. This includes the work of the ‘Foundation for Affordable Accommodation’ as mentioned in the budget. In the housing market Gozo faces specific challenges caused by an emphasis in these past years on the development of land into blocks of apartments targeted mainly for Maltese residents who are buying their second home in Gozo. This has caused a rise in the price of property for first-time buyers. Such trends on a regional dimension need to be examined and catered for.

The Chamber also noted the emphasis in the budget on human resources, and the general direction to align the skills required to those of the green and the digital economy. In this regard Gozo offers significant potential and more emphasis needs to be put in this direction on a regional level. The Budget also mentions the Census of Skills for Workers. This is an important initiative which however also needs to focus on a regional level.

The budget does not delineate any significant investment in the industrial estate in Gozo. As regards connectivity, the budget mentions the various initiatives undertaken including the fourth ferry and the fast ferry. These are important initiatives which have shown that any investment on the connectivity between the two islands can sustain Gozo’s development.

The Chamber reiterated its commitment to the permanent link between Gozo and Malta, and that work on this project should continue during 2022. . The budget puts a lot of emphasis on sustainability. This is a paradigm shift in the way we see economic development, and one which should be sustained. To this end the Chamber positively notes the removal of the capital gains tax and the duty on the purchase of properties which have been built for more than 20 years and have been vacant for more than 7 years, properties which are found in Urban Conservation Areas, and those new properties which are built according to traditional and typical Maltese architectural styles.

Overall it is also important to note that public transport will be free as from next year. This is an important measure which in Gozo should be accompanied in the future with the replacement of the public transport fleet with electric vehicles and more frequent services within our rural communities.

As regards the property sector one positively notes the extension of the reduced tax rate on the purchase of properties in Gozo. From an infrastructural point of view one positively notes the investment in the road infrastructure, the desalination plant in Ħondoq, the new school in Victoria, and the building of new rubble walls around the island.

Overall the Chamber said that although this is a positive budget, the specific needs of Gozo as an island region should be given more attention.

 

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