VAT increase, fiscal measures
lambasted by employers bodies
By David Lindsay
Reacting to Mondays budgetary measures, Maltas constituted
bodies had few words of praise for what was effectively the fruition
of pre-budgetary discussions.
In a joint statement issued the five employers bodies represented
on the Malta Council for Economic and Social Development noted that
while they were pleased that a number of their suggestions were indeed
incorporated into the budget, they also regretted that other measures
were announced despite their "strong dissuasion" during discussions.
The announced, and widely expected, three per cent increase in Value
Added Tax came in for the brunt of the bodies criticisms.
In the joint statement, the bodies concerned the Malta Chamber
of Commerce and Enterprise, Malta Federation of Industry, Malta Employers
Association, Malta Hotels and Restaurants Association and the Association
of General Retailers and Traders made it clear that none of the
private sector organisations had ever suggested or agreed with the idea
of a VAT increase.
"Some organisations may have suggested a harmonisation of direct
and indirect tax rates whereby an increase in VAT would be compensated
for by a commensurate decrease in income tax rates. A similar measure
would have brought a reduction in tax evasion," they commented
by means of a joint statement.
The five constituted bodies warned that an increase in VAT on its own
would be less conducive towards encouraging fiscal morality. They explain,
"Such a move is also detrimental towards the countrys export
competitiveness because it may fuel inflationary wage pressures. It
is felt that the current low inflationary climate and the elimination
of import levies will not suffice to curtail the threat to competitiveness.
The reduction in purchasing power of local consumers will adversely
affect the economy from the local private consumption aspect."
The measures, which were described as "counter-competitive"
were said to have been taken at a time when economic expansion is at
a minimum level, when employment is being shed and in the face of possible
further job losses.
"The Constituted Bodies are perturbed to observe Government attempting
to curb fiscal deficits by turning to the tax paying public constituted
by the commercial community and low-middle income workers.
"It is clear that this budget, as presented, lacks measures which
will stimulate the economy. Although the issue of competitiveness has
been referred to on a number of occasions, there is no concrete measure,
from the Governments side, to secure the somewhat optimistic growth-rate
of 3.5 per cent that the Government is projecting. On the other hand,
the other social partners have committed themselves to enter into discussions
on a new social pact.
"A reduction in the fiscal deficit should, first and foremost be
brought about by a reduction in expenditure. Recurrent expenditure is
set to increase by nine per cent or Lm69million."
Commenting on the fact that governments fiscal imbalance for 2003
will stand at Lm107million as opposed to the projected figure of Lm75million
set at the last Budget, the bodies advise, "It is vital that the
Ministers assurances that the country's financial situation would
be stabilised in the coming three years' time will materialise.
"For this to occur, Government must make further progress in:
putting its house in order, through a determined elimination
of wastages, abuse, bad planning and mismanagement of public resources,
implementing its privatisation programme in order to contain
increases in the national debt and corresponding interest payments,
encouraging entrepreneurship and new investment through a low-tax
and efficient business environment, and
promoting greater fiscal morality through lower tax burdens and
Stressing that the statement is the result of preliminary considerations,
the bodies said they will be analysing the Budget Speech in detail over
the coming days within the context of the Economic Survey and other
available information. Their formal reactions will be made public in
due course following approval of the respective Councils.