Reducing public expenditure should be main priority, GRTU says

by Ivan Brincat

The government’s main priority should be reducing public expenditure, a report carried out by the Association of General Retailers and Traders (GRTU) concludes.
According to the report’s findings, the government should change VAT rules so that small enterprises are allowed instant refunds on inputs of goods and
services. Moreover, the government is being urged to reduce the burden of income tax for loan earners.
Government is also being asked to offer incentives that will enable small businesses to invest more in information technology and electronic commerce in general by offering a 100 per cent capital allowance for investment in Information Technology.
These are a few of the ideas which the GRTU is proposing towards the creation of a better business environment in Malta and a means to stimulate the growth of small businesses in Malta.
Small businesses in Malta, as in the rest of the world, account for a large percentage of enterprises. Of the 26,000 registered enterprises in Malta, more than 24,000 are small businesses employing fewer than 10 people.
The GRTU said a top priority for Malta must be that of encouraging the formation, survival and growth of Malta’s small businesses through the development of an enterprise culture.
According to recent estimates, a small business with less than 10 employees spends 31 hours a month complying with regulations and paperwork. This task in a small firm falls on the owner-
manager.
Unfortunately, the GRTU said, successive governments’ development presumptions and policies have reflected the economic requirements of large-scale firms and the public sector. The resulting structures are inhibiting the formation, survival and growth of small businesses.
The association added that Malta’s future prosperity depends on the country’s ability to increase the rate at which new jobs are created within an evolving economy.
In its proposals, the GRTU said public expenditure at 48.7 per cent of GDP is too high and economically unsustainable.
Public expenditure is far too high because the government does not have a tough no-nonsense plan that ensures that cost effectiveness is the rule in public financial
management.
The GRTU recommends the Minister of Finance to use budget strategy as the launching pad for a targeted 35 per cent ratio by year 2004. Government budget strategies must aim to stop the squeeze on taxpayers and start turning the screw on the public sector, the association says in the report.
Small business should enjoy more from the benefits of the new knowledge-based economy. The GRTU is asking the government to allow the cost of investing in information technology to be written off in the year of purchase.
The GRTU argues that the compliance costs of PAYE, Social Security, VAT and MFSC regulation costs are too high for small businesses.
It recommends that the tax authorities commission a study to measure the impact of these compliance costs on small businesses and to offer remedial action.
The GRTU proposes that the difference in costs should be levelled off as otherwise small businesses will be in a permanent uncompetitive situation vis-à-vis the larger enterprise.
The burden of personal taxes can be relieved by cutting income tax rates, extending the bands of the lower tax rates or by reintroducing personal allowances, it said, adding it was also strongly in favour of the lifting and widening of tax bands to enable more tax payers to escape the taxation trap.
It said the squeeze on middle income imposed by Budget 2000 has a dramatic impact on initiative and investment. It is therefore proposing a reduction in the burden of income tax for low earners to represent a main thrust of national fiscal policy.
The Ministry of Finance’s efforts, the GRTU said, will fail if the emphasis continues to rest solely on efforts to improve revenue. This is having increasing returns for government but it will have dire economic consequences on the cashflow of businesses.
The privatisation programme is too weak and time is being lost and subsidies have to be reduced, the report says.
The GRTU is also proposing that a Public Service Compliance Unit be set up which will have the same powers as the Tax Compliance Unit. It will be managed with the participation of tax payers including business proprietors. The unit will ensure that public sector employees give their money’s worth and the service provided responds to consumer needs.
In its conclusions, the GRTU said the proposals reflect
an internal analysis among a wide cross-section of small businesses.
The control of public expenditure and the reduction of Total Public Outlays as a percentage of GDP should be the government’s main priorities. Parliament should also agree on a percentage annual reduction of TPO/GDP ratio and this be an irreversible decision.