23 - 29 November 2000

Highlights of Budget 2001

By David Kelleher

The budget presented by Finance Minister John Dalli gave a clear indication of how the Maltese economy fared over the past 12 months and prospects for the coming year.
Among the highlights in his speech, Mr Dalli said that the deficit had been reduced to Lm95 million from Lm124 million last year. This figure, he said, is expected to go down to Lm83 million next year, around five per cent of Gross Domestic Product (GDP).
Announcing budgetary measures for next year, Mr Dalli did not introduce any new taxes, or increased costs, especially on the price of fuel. Value Added Tax has remained the same at 15 per cent and VAT has not been extended to other areas that are charged VAT in the EU, such as food.
The following are highlights of the 2001 budget.

Revenue
Next year, Government’s ordinary revenue will increase to Lm666 million, or Lm55 million more than the yield for this year. Lm345 million is expected to come from direct taxation, that is, from Income Tax and Social Security Contributions, and Lm254 million is expected to come from indirect taxes such as VAT, Customs and Excise and from Licences, Taxes and Fines. The rest, that is Lm67 million, is expected to come from other sources.

Income Tax
Income Tax will continue to be the major source for Government revenue. It is projected that next year the yield from this tax will be Lm163 million. This adds up to a quarter of the total ordinary revenue. This increase of Lm13 million from this year will come about mainly from the application of existing legislation and from better enforcement by the Tax Compliance Unit.

Inflation
The decrease in the deficit helps to control inflation. Inflation which this year is expected to reach 2.8 per cent, should decrease to 2.5 per cent in 2001.

Tax On Consumption
Receipts from this tax are expected to amount to Lm116 million.
With effect from first January of next year the government shall make some adjustments which will bring the Maltese system closer to that of the European Union.
The Health and Education sector will continue to be exempt from VAT. The discrimination which was introduced in the system where catering establishments in factories, schools, and industrial zones were exempt from VAT will be removed. These will now be treated like all other catering establishments. They will continue to be exempt if their income falls under the established threshold. Food, medicines, books, newspapers and magazines will remain as they are, that is, exempt with credit.

Customs and Excise
Duty on liqueurs will go down by Lm1.20 on one-litre bottles, while excise duty on whisky will go down by Lm0.20 on each one-litre bottle. Excise Duty on Brandy and Vermouth will be increased. Excise Duty on beer will be 1c4 per bottle.
An increase in the retail price of cigarettes of 5c in each category, that is, the King Size will increase from Lm1 to Lm1.05 per packet and the standard size from 85c to 90c per packet. At the same time there will be an increase in Excise Duty on tobacco used in hand-rolled cigarettes. Hence, Excise Duty on every 20 cigarettes hand-rolled will be 28c7 as compared to 60c3 on 20 cigarettes that are machine-made.
Another increase will be imposed on pipe tobacco. This increase will amount to 34c5 every 100 grams.
These measures are expected to provide an additional revenue of Lm1.5 million next year.

Oil
Another adjustment will take place in the way that excise duty on oil products is calculated. This change will result in an increase on excise duty on products and a reduction in others. However, these changes will not affect Enemalta and, therefore, there will be no change in the price of any product.
In order for Enemalta to retain the current prices for next year, government will grant an exemption equivalent to Lm1.6 million on excise duty payable by the Corporation. At the same time, government will carry the capital cost and the consumption cost of public lighting, which have so far been absorbed by Enemalta. This amounts to Lm1.3 million.
As from 1 January 2002, a new system will be introduced for prices on oil products to be linked to international prices. This takes place in almost all countries.

Public Service
The total cost of Government payload will go up to Lm199 million, or 12 per cent of the Gross Domestic Product. This amount will also include compensation of the cost of living increase – Lm1.50 – with effect from 1 January which will cost Government Lm2.6 million.

Local Councils
The allocation for local councils for this year will be Lm9.7 million. This is expected to be increased by almost Lm600,000 next year in order to help local councils in their commitment to ensure adequate lighting in the streets of their localities.

Children in Private Schools
The government will be providing Lm500,000 to promote a scheme of assistance to parents with children in private schools.

The Environment
VAT on equipment for the generation of alternative energy, like solar heaters and solar panels, will be reduced from the present rate of 15 per cent to five per cent.
Registration tax on battery-operated vehicles will be reduced to 16.5 per cent from the normal rate of between 50 per cent and 75 per cent. Registration tax on battery-operated motor cycles will be reduced to 6.5 per cent from the present rate, which today stands at between 28 per cent and 42 per cent. These rates will be reviewed after two years in accordance with market changes.