Budget 2014 | Scicluna to announce €46 million in indirect taxes and government fees

A document submitted by the government to the European Commission suggests that Budget 2014 may include an increase in direct taxation.

While income tax cuts will see €40 million less generated in revenues for the exchequer over three years, the government will announce €31.5 million in a series of new indirect taxes, and €15 million in new government fees where services will be offered against a fee.

Finance minister Edward Scicluna is also expected to announce new "expansionary measures" to spur economic growth and jobs that will see €40 million less going to government coffers.

Meanwhile, speaking on TVM's current affairs programme Reporter, Prime Minister Joseph Muscat denied there would be any increases in VAT.

The government said the programme was in line with its policy to shift taxation from direct to indirect.

A summary of the Economic Partnership Programme can be read here

At the beginning of the month, Malta submitted an Economic Partnership Programme and a report on 'Effective Action' outlining the government's plan to close 2013 with a general government deficit below 3%.

Malta is currently under the Excessive Deficit Procedure (EDP) but the government is confident it will reach its 3% threshold before the end of year.

In its report on effective action, the Ministry for Finance said the government would be implementing a number of structural fiscal consolidation measures to support Budget 2014.

"Government's policy to shift taxation from direct to indirect will be sustained over the medium term," the government said, explaining that the revisions in the income tax regime in recent years, the 2013 Budget provided for the widening of the income tax bands for single and joint tax computations.

However, this will be implemented gradually in a manner that will limit the expansionary impact on public finances that will amount to 0.17% of GDP in 2014.

For the period 2013 to 2016, the gradual losses from the revision in the income tax regime affecting direct taxation will be offset by similar gradual revisions in indirect taxation planned in the context of the budgetary exercise for the upcoming year. "Moreover, revisions to the VAT legislation are currently ongoing. These will empower the Finance Minister to revise as necessary the penalties and interest payable on taxation due in order to increase tax compliance and ease the recovery of amounts due."

Malta, who has repeatedly faced calls by the European Commission to increase the pensionable age, reassured Brussels that the pension reform initiative legislated in 2006 was expected to contribute positively in terms of revenue from social security.

The revenue is expected to stand at 0.15% of GDP in 2014, and 0.16% of GDP in 2013.

"In addition, pension reform initiatives are expected to reduce public expenditure by 0.27% of GDP in 2013 and 0.26% of GDP in 2014."

On Air Malta, the government said a further €15 million in equity injection is planned for 2014. To date, €20 million and €40 million have been disbursed in 2012 and 2013 respectively.

The Labour government, which has embarked on a comprehensive spending review (CSR), is now also "committed" to restart the practice of restricting recruitment and reducing public sector employment through attritions.

"In particular, the government is committed to restrict the replacement of retirees and resignations by a ration of 2:3. Health and education will be excluded from this exercise," the ministry emphasised.