Is consumption tax on governments
mind rather than VAT?
The announcement of proposed tax increases usually brings
about a veritable hoo-ha in any country, but amazingly, the recent revelation,
so far not denied, that government is proposing tax increases as part
of its welfare reform has raised many questions, but little to no public
Besides Labour spokesperson Leo Brincat, who spoke in Parliament, very
little discussion has gone on in the media.
Brincat told The Malta Financial and Business Times that he would rather
not speculate about the issue at the moment, but in parliament indicated
he was not pleased about the suggestion that government may raise VAT
to 18 percent.
Constituted bodies that will be involved in discussions with the government
at the weekend preferred not to comment at this delicate stage, and
while economists contacted by this newspaper had there own ideas on
the subject, they were on the whole unwilling to be quoted publicly.
In the pre-election months and in the PN electoral manifesto, there
was no indication that VAT would increase and minister Dalli had promised
there would be an easing of the tax burden.
If there is an increase in VAT there could be an increase in government
revenue, but this is likely to be more than set off with lower disposable
incomes. The eventual effect could be deflationary rather than as one
would expect inflationary as consumer spending decreased because of
the higher taxes.
Lower disposable incomes would mean less available income for private
pensions which would also seem to be on the cards as part of welfare
One of the economists that The Malta Financial and Business Times spoke
to, who preferred not to be named, said that the governments proposal
was not actually to increase VAT, but to introduce a consumption tax.
The difference, he explained, is that: "In the case of a consumption
tax this can be imposed on certain products and services and can be
temporary. The idea would be to fine tune the economy and improve its
tax raising possibilities with the proviso that the taxes could be removed
once that was achieved.
"An increase in VAT would not be the same thing as VAT is subject
to certain regulations and, for instance, once an increase is decided
upon, it is not likely to be reversed."
The Malta Financial and Business Times contacted Economist Prof. Scicluna,
who said that he would not like to speculate on what might be included
or excluded, since it is the whole package which counts. However, what
he knows for sure is that the rating agencies will be studying the forthcoming
budget with even keener interest than normal.
Economists Lino Briguglio and MFSA chairman Joseph V. Bannister were
contacted by this newspaper, but preferred not to be quoted.
The unions and constituted bodies have been given a week to consider
the proposals and will be meeting government representatives on a three
day retreat of the Malta Council for Social and Economic
Development, starting Friday to discuss the proposals.