‘Flat rate tax’ for the wide middle-class

By Jurgen Balzan, Miriam Dalli and Karl Stagno-Navarra

Prime Minister Lawrence Gonzi has defended tax cuts he has committed his government to over the next three years, in fulfillment of his 2008 election pledge to deliver reductions in income tax for all taxpayers.

Finance minister Tonio Fenech yesterday widened the tax band for a swathe of middle- to upper-middle class voters who will pay a reduced 32% tax on incomes ranging from €19,501 to €60,000 - down from 35% in 2013; which will keep going down to 29% in 2014 and 25% in 2015.

As things stand, a chief executive on €60,000 will be paying the same rate of tax as somebody earning €14,000, currently in the 25% tax band. No other tax bands were widened for lower income-earners.

"It was our responsible choice when the financial crisis hit, to focus on the creation of jobs and we have created over 20,000 new jobs in the last five years," Gonzi said, lauding his government's financial stewardship.

"Since we closed this year with EU-confirmed projections of a further 0.5% decrease in the deficit, thanks to the economic growth we have generated, we felt that this tax cut was a way of putting more money in people's pockets, apart from other measures we have provided for pensioners, children's allowances and supplementary assistance."

Gonzi refuted the tag that the widening of the 32% tax rate was socially regressive, saying the tax measure could not be seen cut off from other measures that this year's budget had introduced. "Apart from this tax, we reduced many taxes over the past nine years for women returning to the labour market and for businesses."

The prime minister said that if the budget does not pass in the case that Nationalist MP, who yesterday raised a breach of privilege against finance minister Tonio Fenech, he would go for elections.

"I hope that everyone is aware of the responsibility they will have to bear if this budget does not pass," Gonzi said in a reference to Debono.

Gonzi did not commit himself on whether the increase in the cost of living allowance will take place as from 1 January 2013 if the budget does not pass.

"I won't tackle hypotheses... on 10 December there will be a vote, and if the vote does not pass we will see what happens then. If the budget does not pass, it cannot be implemented," Gonzi said.

The prime minister left no doubt as to this year's budget being the PN's electoral programme for elections that appear to be sure to happen in the first months of 2013.

"Now everybody knows that with the PN in government, they know what they get. This is the fruit of a five-year legislature... and now it is a closed legislature. I thank everybody who worked with me, and I ask the people to judge us by what we have done."

Opposition leader Joseph Muscat

On his part, Labour leader Joseph Muscat said the government had not maintained its 2008 electoral promise because the income tax reduction will happen over three years, and the tax bands were not changed to ensure that everyone benefits from a tax cut.

Describing the 2013 Budget as "the final act of the Nationalist government," Muscat said that "GonziPN no longer understands how the economy works."

Muscat said the budget measures could only be guaranteed by Labour, adding that the 2013 budget was presented by a coalition government which does not know whether the budget will be approved.

Addressing the media minutes after the end of finance minister Tonio Fenech's budget speech, Muscat said that a new Labour government would maintain the foundation of the budget if this not approved in the coming weeks.

"We will uphold the budget's foundation by maintaining the same expenditure and income levels," Muscat said.

Stressing that a new Labour government will put more money in people's pockets, Muscat said a new government will "do more and do better" and will not wait till the end of a legislature to implement its programme.

Branding the budget irresponsible, Muscat said: "We are responsible because we will maintain the foundations of the budget and the positive measures announced today."

He also insisted that a new Labour government will reduce utility bills, and that he will still be able to implement his promise to reduce utility bills while upholding the foundations of the budget presented today.

"Energy bills could be reduced by implementing a realistic and doable energy plan which can be introduced without increasing the government's subsidies."

Turning his attention to the income tax cuts, Muscat said: "A limited number of people will benefit from the tax cuts since the tax bands were not changed."

Muscat said many persons will not benefit from any tax reductions while minimum wage earners will start paying income tax. "This uncovers the anti-social face of this government," he said.

Asked how a Labour government will make amends to the tax cuts which will put persons earning €14,500 on a par with others earning €60,000, the Labour leader said: "The middle class is worse off following these tax cuts and while those who received a tax cut will still enjoy the cuts granted today, we will keep those who did not receive a tax cut in mind and see what can be done."

He said nobody will be deprived of what was granted in the 2013 Budget but "we [Labour] will cater for those who were forgotten by this budget."

Muscat called on government to introduce the cost of living increase and other benefits immediately without waiting for the budget's approval and promised that "once elected, a Labour government will grant all increases immediately, backdated to 1 January 2013."