Government not getting backing
for budget measures
- GRTU stands against VAT increase
By Julian Manduca
The GRTU yesterday joined a chorus of disapproval from the constituted
bodies and yesterday announced its opposition to any increase in VAT.
"The GRTU is categorically opposed to any increase in VAT. An increase
will mean that the public that pays the tax and the self-employed that
do their duty to collect VAT (which involves much work and is done without
any remuneration) will suffer and have to make good for the deficiencies
of others," Director General, Vince Farrugia said in a strongly
Farrugia said consumers are already heavily taxed and any increase in
VAT will further erode the purchasing power of consumers.
"Many products will not be able to stand a price increase as the
market will not handle them and taxes will have to be borne by the businesses.
"That is why inflation has fallen to its lowest level in the last
20 years. Increased prices will have a negative impact on investment
levels and employment in the service industry," Farrugia added.
The GRTU said the service industry was making up for the loss of jobs
in the manufacturing and tourism sectors and loses experienced by large
companies that are dismissing employees.
Farrugia does not believe the solution can come from government bonuses,
as is being suggested. "Private enterprise will have to increase
wages because of the higher cost of living brought about by the VAT
increases. Maltas ability to compete will be adversely affected
by the increases and Malta cannot afford the expected spiral of price
and wage increases."
The Prime Minister has already made it clear that VAT will be increased
in the next budget, emphasising that there was a need for people to
show solidarity. The VAT increase is expected in part to go to a fund
to support Maltas welfare reform.
The General Workers Union has made it clear that it will not accept
unpopular measures lightly, and is demanding compensation
especially for workers and the elderly.
If the government does agree to compensate, and it is
widely expected to do so, this would mean that the impact of increased
government revenue will be offset by the compensation to be paid.
The Federation of Industry on its part has called for lower costs for
industry should the VAT increase go ahead. The argument being that higher
prices will lead to claims for higher wages.
The FOI has put forward the argument that while salaries cannot be capped,
but is calling for an increase in productivity.
President Anton Borg pointed accusing fingers at over employment in
the public sector as well as half days for government employees in the
summer and port costs. Borg said that if there were less employees at
Enemalta, for example, the price of energy should decrease.
As has been highlighted several times, Maltas port costs are much
higher than our competitors and proving to be damaging to industry.
No matter what finance minister John Dalli and his Cabinet decides for
the Budget Monday, some, or many, people will remain disappointed. Already
the FOI, GWU and GRTU have shown opposition to suggested VAT increases.
However, given that Maltas economy has not been performing well
and it endures such a large deficit, the worst that Dalli could do would
be not to introduce any changes.
That would be an unthinkable option, and nobody seriously believes Dalli
will hold back. Debate rages as to what impacts tax increases will have,
and it is not clear that budget increases will be restricted to VAT.
The present government brought income tax down from 65 to 35 percent,
and Dalli could feel there is room for increase there, especially since
income tax in EU states is generally higher than that in Malta.
Tax on certain unhealthy products in inelastic demand will probably
face higher taxes so cigarettes and alcohol will be more expensive next
year as, most probably will petrol.
When government calculates what should be given as a rebate to make
up for increased taxation, it must calculate to pay out less than it
will collect from increased VAT. It would serve social justice if the
compensation is only given to those that need it.
Minister Dalli must make a reasonable attempt to come to terms with
our budget deficit, which over the years has proved to be a major headache,
so government revenue must be raised somehow. While there is room for
cost cutting in the public sector, there is a limit to how much can
be cut. Malta must make up for up to Lm150million Liri and a few thousand
here and there will never do the trick.
What Dalli must be very aware of is that he cannot square the circle.
He finds himself in a situation forced to raise revenue, and a lot of
it, without causing more economic stagnation, which will have the opposite
effect. That is why a selective increase in VAT mainly on goods which
are in inelastic demand, my be the best way to go. That will mean that
people will not be discouraged to spend and government will raise more
revenue. Whether it will be enough however, at this point in time, remains
As a solution to Maltas economic problems, the GRTU is suggesting
cutting down on public expenditure, the introduction of practical ideas
to encourage efficiency and more jobs. The Malta Financial and Business
Times contacted Vince Farrugia, to ask him, if that would be enough
to set right Maltas deficit problems, but no reply was received
at the time of going to press.