25 November - 1 December 1999

Budget is neutral but could affect purchasing power - FOI and Chamber

by Franco Aloisio

Both the Federation of Industry and the Chamber of Commerce have said that the Budget for the year 2000 will have a neutral effect on business as there were no specific measures announced which could adversely affect the productive sectors of the economy.

However both organisations yesterday said that they were concerned over the indirect effects on business due to certain measures, especially those which could reduce the disposable income and purchasing power of consumers.

Various austerity measures, such as a 15 per cent VAT rate imposed on petrol and diesel, five per cent VAT on telephone bills together with higher income tax rates and increased social security contributions were introduced in last Monday's budget.

"The fact that the government has not placed any extra burdens on the private sector is a positive factor. In fact, VAT on petrol and telephone services are refundable," FOI President Joe Caruana Curran told The Malta Business Weekly.

"However the Budget has increased the number of taxes on consumers, and this could have indirect effects on the business sector. The FOI believes that the government should have introduced more measures to curtail public expenditure in order to lower the deficit, rather than burden the consumers with more taxes," he said.

Mr Caruana Curran said that the Budget did not contain any specific measures aimed at the restructuring of the economy. Moreover, the FOI believes that the Budget did not say how the government aimed at attracting foreign investment in the country.

The President of the Chamber of Commerce, Louis Farrugia, told The Malta Business Weekly that the lowering of the budget deficit was a step in the right direction.

"When the deficit is lowered and the public finances are in good shape, business confidence will increase. Therefore the Chamber believes that the Budget was a step in the right direction and we support the government over this," he said.

However Mr Farrugia said that certain measures will be inflationary and will put more pressure on wages. He said the Chamber of Commerce wants to see more accountability and discipline in the public sector. Mr Farrugia also praised the setting up of a Tax Compliance Unit.

Joe Preca, the President of the Malta Hotels and Restaurants Association, said that although new incentives for the tourism industry were announced, the Budget failed to address the needs of tourism as a whole.

"Our main concern is more activity has to be generated in winter tourism in Malta. This issue was not addressed in the Budget," said Mr Preca.