Reflections on the Budget’s brighter side

Readers may doubt if after the cascade of commentary on the budget there is anything else one could add, yet once the dust has settled it becomes intriguing to engage in a quest to elucidate its silver linings.

Overall, the positive measures of the 2016 Budget abound and this is without any doubt a praised stance yet there is always a fly in the ointment as the Opposition claims that more wealth could have been gifted to the lower strata of the social classes. Unfortunately a Budget is just that, and as the name implies remains constrained by its own limitations that preclude it from ever being all-encompassing.

However the commendable measures introduced were various, and a brief look at some of the same will follow. To start with it is music to our ears to see start-ups high in the ranks of receiving an allocation away from the heavy mantle of bureaucracy, as is the announcement that the MFSA will reduce fees for online company registrations having a share capital of less than €1,500. An effective saving of €150, that is, paying €100 instead of €250 is in perfect harmony with the revised text for the proposed Single Member Limited Liability Company EU Directive proposal, whose revised text was published on the 21st May 2015.

This proposal primarily seeks to attain an efficient cost reduction that enables simple incorporation of subsidiaries in other member states. For start-ups, an initiative brimming with promise comes in partnership with Malta Enterprise and envisages financial assistance in the region of €200,000 to €500,000 while encompassing current buzz words ‘private equity’ and ‘crowd-funding’ within its purview. This comes in perfect synchronization with the recent open panel discussion on venture capital hosted at the Stock Exchange a few days ago under the auspices of Finance Malta and at which session was formally announced the launch of Malta’s first crowd-funding platform in November 2015 by MBB and University of Malta. 

It also looks like Malta will herald in its first National Development Bank to kick-start ambitious financing projects, hitherto not extendable under present retail banks which is in tandem with work ongoing with the European Fund for Strategic Investment (EFSI), hence remaining also under the supervision of the Commission of the European Union. Given the recent interest voiced locally in the direction of venture capital funds and related measures, one is curious as to whether the two could futuristically converge at some point down the line, in complementary fashion to the foregoing.

Moving on one reads of a proposed revamp of insolvency proceedings to expedite the process thus benefitting creditors, banks and investors while enhancing competitiveness, albeit one waits for more details to be announced. The popularity of the public private partnership (PPP) remains hot on the cards whereby a further three PPPs are formally proposed to be formed joining the list of successful PPPs that were launched last year.

The new initiatives are focused on the education, property and maritime sectors, all kernels of the Maltese economy no doubt, perhaps especially so in view of the administration’s penchant to expand the maritime sector, on which note PKF had made recommendations to Trade Malta earlier this year. A novelty is a further PPP envisaged to be set up in conjunction with MHRA in order to administer a fund whose purpose will be the upgrading and improvement of various touristic areas.

Contributions to this fund shall be via a new ‘environmental’ tax to be levied on tourists at the rate of 0.50 euro cents per night spent in Malta, capped at €5 per tourist. The Opposition spokesperson complained that this is ring-fencing the contributions, when for example millions are paid annually in motorist license fees but only a small proportion is allocated to road repair and ancillary roadworks.

A very admirable move in the author’s mind is the attention dedicated to tackling the plight of migrants queuing in the early morning hours at the outskirts of Marsa waiting for pick-ups for jobs. This is expected to be regularized next year as an Immigration Work Office “PPP” will take shape and be given the mandate of bettering work conditions and fighting work at precarious rates. Given the current legal framework with the burden of proof being placed firmly on whoever is alleging a wrongdoing, the proliferation of such mischievous migrant engagements must have been a frightful bulwark to counter. Hence, incentivizing legal employment remains praise worthy in every instance, but is especially so in the present case.

To see procurement feature amongst budgetary measures might have come as a surprise; in fact the budget spoke of efforts to render procurement processes less lengthy and more simplified. Bringing our country up to speed with mean European time-frames for conducting of tender processes is a commendable measure however, this begs the question: what of measures to cleanse the process of bureaucratic demons that still torment equity-seeking bidders in very tangible ways? The only remedy for deemed unfair treatment in submission of competitive tenders remains appealing to the Review Board, a measure that on occasion is lacking in required effectiveness, to say the least.

Given protestations of reformers to the shaky pension fund, one views how the infamous third pillar has been announced as having been heralded in through a new regulatory framework together with new products falling under private pension schemes. Moreover, no budget is complete without desirable measures aimed at introducing a long awaited fiscal consolidation aimed at simplifying tax computations by enabling group companies to present aggregate income under one single tax return and as though, therefore, the group were one single person.

This, together with the added announced incentive of an exemption of withholding tax that will become applicable to group companies renting to one another, is a valuable indicator of corporate groups being treated as a single economic entity (SEE) thereby being reflective of the economic reality and slowly moving away from the old-fashioned interpretation of separate legal personality at all costs. 

To encourage more graduates (particularly females) to continue to specialise in their studies, one reads about new tax credits amongst them a credit capped at €10,000 for recruitment of persons in possession of or in the process of reading a doctorate degree in Sciences, ICT and engineering and an extension of the Micro Invest scheme in the form of grant capped at €50,000 in tax credits to female entrepreneurs and firms owned in the majority by females. The latter in particular falls squarely within the national agenda to boost recorded female presence in the work place, a subject PKF has conducted in-depth research on backed by a statistical survey earlier on during 2015. 

The Finance Minister spread good tidings about the renewal of a scheme for first time property buyers in a saving of up to €5,000 comprising stamp duty dues and further benefits to the sporting fraternity where coaches and players of any sport can now benefit from a reduced income tax rate of 7.5%. Special VAT reductions have also been negotiated for users of gyms and related centers, football nurseries for children and the same. 

Finally the bête noir of the proposals was how to solve the growing menace of local traffic. This is the ever-present Achilles’ heel of the country on which government is focused and committed to achieve its betterment. This is to be done through a significant 30% increase in investment on roads and devising of efficient alternative routes to permit a workable system whilst works at identified junctions of Marsa and Kappara get underway.

Moreover, use of small motorcycles (125 cc) featured in a drastic reduction of license fees that is now a mere €10 annually, incentivizing what is hoped to be a measure rendering a tangible alleviation on traffic predicaments. While this has proven a solution in other countries such as the faraway island of Bali, Indonesia where such vehicles constitute the primary means of transportation, in our island as a novel concept, exercise of heightened safety and caution in this regard cannot be stressed enough.

Finally, the much-debated connecting tunnel between Malta and Gozo has been formalized as an intended way forward with feasibility study being concluded and soon to be published. A further study on technical and geological aspects is the next step towards the realization of this dream to permanently link the two islands. 

In conclusion, in parallel with the NSO’s announcement of positive statistical reviews on the Maltese economy, it is perhaps advisable never to rest on one’s laurels and be ever-weary of what looms on the horizon. As the saying goes ‘if it sounds too good to be true, it probably is’. There have been a lot of improvements towards job creation and betterments to our standard of living, yet there is never a utopia and less so amidst the cognizance of piling national debt in ever-dire need of gradual alleviation. 

Dr Marilyn Mifsud is head of legal at PKF Malta