Budget 2014 | New indirect taxes revised downwards to €23.9 million

The government has published its draft budgetary plan for 2014, which projects a deficit target of 2.7% of GDP in 2013. The draft plan also revealed a downward revision of new indirect taxes from the €31.5 million presented to the European Commission to €23.9 million.

The €15 million in new government fees where services will be offered against a fee was retained.

An analysis of the expenditure measures addressing social cohesion has excluded the promised measure whereby Enemalta would be reducing the electricity tariff by 25%. "While this will be carried out without any funding from the government, it will have a significant progressive effect on disposable income," the draft plan says.

Data from the latest Household Budgetary Survey indicates that a selection of indirect tax measures being proposed will affect a share of consumption that is the "lowest" amongst households in the bottom quintile of the income distribution.

At the same time, government is continuing with the gradual marginal widening of the income tax band, first announced in Budget 2013 by the Nationalist administration. The majority of the benefits from the widening in the income tax bands will accrue to persons living in households and in the top quintiles of the income distribution.

"Government is aware of the regressivity of this measure and has party mitigated its impact by ensuring that as from 2013, persons earning a chargeable income from employment not exceeding the national minimum wage, including the statutory bonus, would be excludable from income taxation."

To improve employability, the government will propose a series of policy changes in the benefit system aimed to reduce disincentive to work for specific groups, in particular widows, single parents, the long-term unemployed and older workers.

"The government is seeking to introduce the tapering-off of benefits for the long-term unemployed to remove the high marginal tax rate for persons entering the labour market."

The government reiterates that the increase in the general government balance above the 3% of GDP is considered by the government to be "temporary and exceptional".

"Malta remains committed to reach a deficit target of 2.7% of GDP in 2013, supported by a number of structural reforms on the assumption of a recovery in domestic demand conditions in the second half of the year."

The decline in the ratio of general government deficit-to-GDP is expected to be sustained and the fiscal imbalance is expected to be reduced further from 2.7% in 2013 to 2.1% in 2014.

The expenditure ratio is expected to increase marginally by 0.3 percentage points to 44.9% of GDP in 2014.