We welcome you to the main highlights of yesterday’s budget speech delivered by the Minister of Finance, the Honourable Prof. Edward Scicluna, prepared by Parker Randall Turner.
The Prime Minister, the Honourable Dr Joseph Muscat held that “The plan has been always been that of stabilizing the economy, generate growth, create work in abundance and then target those people who cannot keep up with the rest of society.’’ In fact Dr Muscat’s first reaction was that this budget introduces “a new wave of social services” aimed at those who are more vulnerable within our society.
Meanwhile, the initial comment of the Leader of the Opposition, the Honourable Dr Simon Busuttil, was that this budget was a cosmetic one which lacks vision. “Tomorrow, the public out there will have the same issues as before the Budget. People will still be stuck in traffic, Air Malta employees are still unsecure about their future and the people with cancer are still waiting for their medical appointment ” he said.
ECONOMIC OVERVIEW 2016
Hon. Prof. Edward Scicluna, opened his budget speech by providing a very encouraging outlook of the Maltese Economy.
Primarily, he maintained that the country’s GDP growth in real terms was double than the Eurozone’s average of 1.9% for the first six (6) months of 2016. The following figures were also relayed:
1. DEFICIT – During 2016, the deficit is expected to be 0.7% of GDP, rather than the 1.1% of GDP previously estimated. Whilst during 2017, the deficit is expected to continue to decrease to 0.5% of GDP.
2. EMPLOYMENT – During the first 6 months of 2016, an average of 7,400 jobs were created, thus reducing unemployment rate to 4.9%.
3. ECONOMIC GROWTH – GDP growth for the first 6 months of 2016, was reported to be that of 4.1%.
4. COST OF LIVING – The weekly cost of living adjustment will be that of Eur 1.75 per week.
5. INFLATION – Inflation rate until August 2016, was that of 1%, whereas an increase to 1.7% is being expected for 2017.
6. TOURISM – An increase of almost 10% was reported in the number of tourists who have visited the Country, over last year.
7. GOVERNMENT DEBT – By the end of 2016, this is being expected to drop to 63.3%.
FISCAL MEASURES – ECO CONTRIBUTION
1. The reform in eco-tax contribution will be effective in full by the end of this year, whereby eco-contribution is being abolished on batteries, mattresses, detergents & toiletries, vehicle filters, and plastic objects and containers for use in kitchens. However, as from 1st January 2017, toiletries will be subject to excise tax and excise tax on non bio-degradable garbage bags will be increased as of today.
2. The price of cigars and cigarettes will increase by an average of 3.76% whilst tobacco will increase by 5.5%.
3. Excise tax on non-alcoholic drinks will increase by Eur 0.02 per litre, whilst no increase in excise tax is being reported in relation to water.
4. Excise tax is being introduced within the construction industry, specifically on materials used, particularly on large scale constructions.
FISCAL MEASURES – INCENTIVISING ECONOMIC ACTIVITY
1. As of next year, shareholders receiving dividends from companies listed on the stock exchange, who hold not more than 0.5% of nominal share capital, may claim a refund of tax.
2. Companies forming part of a group will be allowed to calculate their profits and losses collectively through detailed fiscal consolidation regulations which will be issued.
3. Duty on documents shall be decreased to 1.5%, as of next year and for a period of 12 months, in instances where businesses are transferred from parents onto their children.
4. The first-time buyers measure has been renewed for a further year. Furthermore, first-time buyers may benefit from a refund of Eur 100K when investing in the restoration of scheduled property within the first or second grade or UCA property.
5. When purchasing a residence in Gozo, duty on documents is being decreased to 2%. This will apply for promises of sale entered into and registered with the Inland Revenue Department in 2017, in relation to which, the public deed would have to be published by the end of 2018.
6. When a vendor transfers inherited property, irrespective of when he would have inherited it, a final withholding tax of 7% of the transfer value would apply upon the transfer.
7. Registration tax payable in relation to vehicles purchased from persons who have benefitted from an exemption due to their disability, the amount exempted shall be spread equally over a ten-year period.
8. As of next year, contracts of rent of three months or more including renewals of rental contracts, would have to be registered with the Inland Revenue Department.
EMPLOYMENT AND SOCIAL WELFARE
1. In-Work Benefit scheme for low income families is being extended to families with children having only one of the parents in employment. This benefit was of Eur 1,000 per child. The ceilings in relation to both of these schemes are being increased, whereas the rates shall be increased for every child under 23 years of age.
2. The ceilings for supplementary allowance are being increased to Eur 13,000 for low income couples who do not have children under 16 years of age and who do not receive children’s allowance. An increase in supplementary allowance of Eur 126.36 p.a. will be given to single persons in employment who do not exceed an income of Eur 9,012 p.a.
PENSIONS AND THE ELDERLY
1. As of next year, pensions will increase by Eur 4 per week for married pensioners and the elderly who receive a minimum pension. This will also be paid to pensioners on a pro-rata basis, who receive a pension slightly higher than the minimum.
2. The increases in supplementary allowance announced for minimum wage earners, are also being extended to pensioners.
3. A donation of Eur 300 will be given to pensioners who are of 75 years of age and who are still living in their residence.
4. Pensioners who receive a pension not exceeding €13,000 shall be exempt from income tax through an exemption which will be implemented over the coming two years.
5. As of next year, service pensions which are deducted from social security pensions, will be increased by Eur 200.
6. An increase in pensions of a maximum of Eur 20 per week will be introduced in order to eliminate discrimination on the basis of gender.
7. Carer’s allowance will be increased substantially as of 2016, and will no longer be subject to a means test.
8. Three levels of disability categories are being introduced. The first level shall be those persons who cannot work in view of their disability. These persons shall be entitled to the highest benefit, which in time shall be the same as the minimum wage. The second level shall be those disabled persons who are able to work and whose disability is categorized under the Social Security Act. The third level which is being introduced will include people under 60 years of age and who to date are not being categorized as disabled and are not receiving any benefits.
OTHER SOCIAL MEASURES
1. Subsidies currently being given to low income families on the rental of property, will be doubled. The eligibility criteria will also be extended to double the number of families currently benefitting from this subsidy.
2. As of next year, there will not be increases in rent for houses rented out from the Government or from the Housing Authority. A refund will also be given to those persons who suffered increases in rent from 2013 to date, for such properties.
3. A project of 100 cases will be launched, whereby tenants who lease their property to low income families and who enter into a 7 year contract, will benefit from a low income tax rate on such rental income of 5%.
4. A Government Bond will be issued having a higher than market interest rate, which will be targeted to pensioners.
5. Thresholds for the means test will be increased to Eur 23,300 for married couples and Eur 14,000 for single persons.
EDUCATION AND TRAINING
1. A new project is being launched aimed at decreasing illiteracy through football.
2. Three new schools will be built, in St. Paul’s Bay, M’Skala and Victoria.
3. Stipends will be increased to reflect the cost of living. Thresholds in relation to supplementary allowance given to students will also be revised.
4. Tablets will be introduced in the 4th year classrooms of primary schools.
5. Improvement in WIFI infrastructure and accessibility will take place and replacement of computers older than 8 years will be effected.
6. Eur 400K will be allocated next year as paid leave, to persons in Government and other schools, asking for leave for the purpose of furthering their studies.
7. Jobsplus will continue offering the current training and employment schemes - Work Exposure, Traineeships, Access to Employment, Investing in Skills, Work Placement Scheme, Training Pays and Community Work Scheme.
8. The Work Programme Initiative will continue through its collaboration with the Private Sector to assist persons of 25 years who have been in search for work during the past 12 months or more.
1. In August of this year, a scheme has been approved in relation to large scale renewable energy installations aimed at those persons who do not have access to a roof.
2. In 2017, energy grants will be continued to assist persons wishing to install solar panels in their residence.
3. Other grants will be launched to incentivize the use of heat pump water heaters, double glazing, roof insulation, solar water heaters and restoration of wells.
4. Malta Enterprise will launch a scheme aimed at businesses consuming high energy levels in order to assist them in investing in more energy efficient systems and machinery.
5. A new scheme will be launched for hotels, by the Energy and Water Agency and the MHRA, whereby members will benefit from gains on savings registered in their energy consumption.
1. A tax credit will be given of 150% up to a maximum of Eur 35K p.a. to employers who will provide transport services to their employees and a maximum of Eur 50K p.a. to employers who provide such transport in conjunction with other companies.
2. Persons who will be 18 years of age in 2017 will benefit from one year of free public transport service up to a maximum of Eur 312 per person.
3. The bicycle rack scheme for employers will be renewed for next year.
4. Various infrastructural projects on roads will continue taking place next year.
5. A new fast ferry service will be launched between Valletta and Mgarr (Gozo). The tender for the construction of the tunnel between Malta and Gozo will be issued next year.
COUNTRY’S COMPETITIVENESS AND OTHER MEASURES
1. In order to prevent unfair competition and tax evasion, a ‘Joint Enforcement Task Force’ is being set up. This will strengthen the collaboration between the Inland Revenue Department, the VAT Department and the Customs Department. The Tax Compliance Unit will also have an active role in this initiative.
2. A tax credit of a maximum of Eur 250K will be granted to persons investing in SMEs or funds that invest in a number of SMEs registered on an alternative trading platform as prospects on the Malta Stock Exchange through the ‘Risk Investment Scheme’.
3. An exemption from tax is being granted to entrepreneurs who sell their shares to the public through listing on the Malta Stock Exchange and on the alternative trading platform.
4. New measures are being introduced for employers who invest in private pensions on behalf of their employees, which will include an income tax deduction equivalent to the amount contributed by the employer and a tax credit of Eur 150 for every Eur 1,000 contributed by the employer.
5. Malta Enterprise will be launching a number of schemes for businesses. Disadvantaged persons setting up their business will be assisted through a grant of up to Eur 25K per business set up. For businesses related to research, a tax credit of 25% to 45% will be granted.
6. A tax credit will also be granted to the digital gaming sector developing games with a cultural theme, of up to 30% on costs related to the development expenses.
7. In an effort to incentivize entrepreneurship, persons who have graduated from post-secondary education in the past three years, who set up a company having less than Eur 80K turnover p.a. will be exempt from auditing in the first two years. Alternatively, they may also opt to have the company audited and instead receive a tax deduction of 120% of the auditing costs incurred up to Eur 700 p.a.
8. Government is considering the setting up of the Malta Development Bank catering for infrastructural investment.
9. The Minister announced Government’s intention of setting up the Malta Export Credit Agency, and the commencement of operations by the National Economic and Social Development fund.
1. Malta Enterprise will be launching a tax credit aimed at hotels and restaurants, which refurbish their business premises, of up to Eur 200K and Eur 50K respectively.
2. Another incentive is being launched, whereby fiscal aid is given to restaurants on a temporary basis to engage chefs experienced on an international level. A budget of Eur 10K is being allocated to this incentive.
3. The funds raised from the eco-contribution of Eur 0.50 payable per day, implemented last year, will be invested in projects aimed at improving the aesthetics of the Country.
4. Business which undertake projects approved by Local Councils, and which are aimed at improving the aesthetics of the locality, will benefit from a deduction equivalent to 120% of the value of the work undertaken.
1. Eur 3.2million are being allocated in the coming two years to invest in a fiber optic link between Malta and Gozo.
2. To continue assisting Gozitan students studying in Malta, the subsidy currently being given to full time students studying at the University of Malta and MCAST, is being extended to Gozitan students studying also in other private educational institutions in Malta.
Please feel free to contact us should you wish further clarification in relation to any of the above.
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The information contained herein is based on our interpretation of the Budget Speech 2017, and should not be used as a substitute for professional advice. No liability for errors of fact or opinion is accepted.