A nod to the hardworking middle class

A tired middle class can look to 2025 with some optimism after Clyde Caruana announced a significant income tax cut that will boost disposable incomes. 

The widening of the tax brackets will result in hundreds of euros in savings for middle income earners. This will come as a reprieve after years of seeing their incomes erode through inflation and savings taking a battering during the COVID years. 

Indeed, the announced tax cuts could not come too soon, although Caruana could have been more ambitious and introduce a new 20% bracket to differentiate the large mass of taxpayers that fall within the 25% bracket. It would have provided greater relief for lower middle income earners. 

But Caruana has also retained the tax refund ranging between €60 and €140 for all workers earning below €60,000, which ensures that those who do not pay income tax will still receive a grant. 
The income tax changes are a nod to the hardworking middle class but more importantly they signal a shift in public discourse. Over the past few years references to the middle class have been few and far between – it was almost shameful to speak about ordinary hardworking families and self-employed individuals who earn relatively good incomes but saw their disposable income eroded by rampant inflation. 

This country’s economic engine rests on these hardworking men and women, who want to give their children a decent education, seek to travel abroad for their annual holiday, spend money in restaurants and shops, and want a safe, clean and normal country to live in. 

Budget 2025 recognises their efforts. 

But the income tax changes are not the only measures targeting this large cohort of workers. Caruana announced another significant increase in the Children’s Allowance of €250 per child. This will help alleviate the financial burden on families with children. 

Significantly, government will also maintain subsidies on energy and fuel thus cushioning families and businesses from higher international prices. Nonetheless, Caruana has retained the indiscriminate nature of these subsidies with no attempt to gradually direct this support towards low and middle income earners and small businesses. 

The finance minister’s projections show that despite the tax cut and the hefty expenditure on subsidies, the country will still post a lower deficit next year. This will be possible because Caruana expects the economy to continue growing in the range of 4.3% and 4.5%, which is well above the EU average. 

The Finance Minister will also bank on a positive sentiment among consumers generated by a boost in disposable income. 

Nonetheless, the budget measures on their own will not be enough to re-create the post-2013 feel good factor unless people can experience improvement in their quality of life. 

This includes tangible matters such as improved public infrastructure, cleanliness, accessible green spaces, investment in healthcare and better enforcement; as well as intangible matters such as less arrogance from government and a genuine commitment to tackle abuse and corruption. 

Although having more money in their pocket is a plus, it is not the only consideration people make. 

One notable example is in health. With the full extent of the Vitals hospitals fraud becoming apparent earlier this year people will continue to be cynical about investment plans in public hospitals unless they see visible progress. And if people are forced to seek medical care in the private sector because of lengthy hospital waiting lists, any increase in disposable income will simply vanish into thin air. 

Middle class Malta will relish the cut in income tax but it will also continue to observe in silence how Robert Abela’s government discharges its functions – a tax cut will not absolve the administration from its ills.