23 - 29 November 2000

Private sector claims budget measures will increase costs

by Franco Aloisio

While welcoming the government’s efforts to improve public finances, Malta’s business organisations said Budget 2001 will increase the costs of the private sector and burden the industry with higher taxation.
Malta’s leading business bodies – the Federation of Industry (FOI) and the Chamber of Commerce – said the Budget did not adequately address the issue of wealth creation, although they said the Business Promotion Act is a step in the right direction.
FOI said the government has burdened the private sector with measures that, at the end of the day, cannot but make it less competitive. It said the government is aiming to collect a higher amount of tax, around Lm56m, which is around 10 per cent of current levels.
“There will be a tightening of tax collection, taxation on certain fringe benefits, benchmarking of the income of self-employed, and taxing collective fund investments. These measures, together with some adjustments in VAT, will increase total taxation in relation to GDP by more than one percentage point to 36 per cent,” the FOI said.
“While the FOI is in agreement that tax evasion should be brought under control, the government is once more asking the private sector to foot the bill for the governments’ inability to contain public expenditure, rather than encouraging it to increase the wealth for the country with lower taxation levels,” the federation said.
FOI said the private sector will have to pay for the considerable increases in salaries to the public service, which will amount to Lm26m every year without any justification on the basis of productivity. Moreover, the private sector will have to finance, via taxes, the heavy subventions and subsidies to corporations and public authorities which total Lm28m.
“FOI welcomes the government’s intentions to benchmark the performance of public sector employees, its efforts to introduce secondment schemes to facilitate the use of under-utilised employees in the public sector for privately managed projects, and to reduce wasteful expenditure.”
Both the FOI and the Chamber of Commerce said they welcome the general increase in employment and the reduction of the deficit to five per cent of the GDP. They welcomed also the further liberalisation of foreign exchange control and of the financial sector.
The Chamber of Commerce commented that equally positive was the enhanced enforcement in fiscal morality and curtailment of abuses on the welfare system. The chamber welcomed the government’s plans to promote Private Public Partnerships, and said this measure is seen as conducive towards the recovery of certain unproductive salaries in the public sector.
“This will serve to involve the private sector, in particular SMEs, in the saving of taxpayers’ funds, enhanced efficiency in government resources and a sustained economic performance,” the Chamber of Commerce said.
Less positive comments were made by the Malta Association of Travel Agents (MATA), which slammed the VAT imposed on the agencies’ mark up as unfair and discriminatory.
MATA said the proposed tax will lead to an anomaly whereby the same product sold at the same price will be subject to tax if it is sold by an agent, but not if it is sold by an airline. The travel agents, said MATA, will face serious difficulties whichever way they decide to treat this tax. If agents decide to pass on the tax to the consumer, the latter would have the option to buy the same service directly from the airlines without paying the tax, the association said.