WATCH | Unions react to Budget 2011. Prime Minister: ‘we avoided austerity cuts’

As Malta still reeled from the after-effects of the chaos from a thunderstorm, Lawrence Gonzi today paid tribute to the economy’s resilience in the face of an international turbulence that saw so many European countries announce budgetary cuts.

Instead, Gonzi said his government was increasing spending on education, health and social benefits and improving environmental sustainability.

“We are increasing tax benefits for parents who send children to private schools, increase aid to pensioners with a full COLA, and not even staying back from added investment in tourism,” he said of a €4 million boost to tourism marketing, up to €35 million.

At the same time, the government has increased VAT on accommodation from 5% to 7%. “The Malta Hotels and Restaurants Association suggested that we introduce a departure tax… this would have also punished Maltese travellers,” Gonzi said. “It’s still the cheapest of taxes in Europe, which means Malta is still competitive on this end.”

Debt and deficit

Gonzi said government will be targeting a deficit of 1.6% of GDP by 2013, but that debt would still be on the increase.

“This government has already decreased income tax in the past years,” Gonzi said when queried on a pledged tax cut to 25% for taxpayers currently paying 35% of their incomes in tax.

“We also gave tax cuts to businesses and exempted women from paying tax in their first year of re-entering the labour force.”

Air Malta

Finance minister Tonio Fenech said the national airline was facing “great challenges” along with so many other legacy airlines like Lufthansa and British Airways.

“The reality is that low-cost carriers are generating much pressure due to their price competitiveness. We have had a record number of tourists but Air Malta’s profit margins have been low because many travellers are choosing cheaper low-cost carriers.”

Cost of living

Gonzi was queried on how a €1.16 weekly cost of living adjustment – some €60 yearly – could compensate for the increase in energy and fuel prices.

“We addressed our limited resources to those who need it the most. We increase expenditure in education, health and medicines. We may have not repeated the €11 million paid out last year and the energy benefit schemes… but we chose the schools, pensions, supplementary allowances, homes for the elderly and the disabled, the environment, and we chose to make changes without endangering our fiscal stability.”

Finance minister Tonio Fenech said that last year’s COLA had been much higher and that employers had accepted to absorb the increase. “But in our country, wage increases also happen through collective agreements, so every sector has its own arrangement according to its productivity levels. The COLA is a transparent mechanism.”