17 November 2004

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Budget 2004: pushing for business incentives

Budget 2004 will be presented in a mere week’s time and it has not attracted much media attention this time around. Discussions in the MCESD are believed not to be proving as fruitful as was earlier hoped with the different groupings adopting positions that are too distant from each other to hope for any consensus.
Of the large constituted bodies only the Federation of Industry and the Malta Employers Association have presented their recommendations to date.
The Malta Financial and Business Times spoke to Louis Farrugia the CEO of the Farsons Group of Companies, Tony Zammit Cutajar the managing director of P Cutajar and & Co, and Boris Farrugia the financial controller of the Polidano Group, which is involved mostly in the construction industry about their budget expectations.
All three were asked what they expected to see in the upcoming budget and what, if it was up to them, they would include announced in the budget speech on 24 November.
Entrepreneur Louis Farrugia, who heads one of Malta’s most prestigious manufacturing companies, Farsons, told this newspaper he expects Prime Minister and Finance Minister Lawrence Gonzi to take measures that will:
- continue to achieve the aim of narrowing the deficit in line with long term targets and;
- introduce fiscal incentives to help employment; and include direction from social partners.

Asked what he would like to see in the budget, Farrugia replied:
- tight spending targets for Ministers to hold to ensure a good value for money culture;
- timely privatisation of Government entities;
- fiscal incentives for business to help employment;
- right message from Social Partners which should tie in with economic realities; and
- Government direction given to the economy i.e. helping to improve Malta's competitiveness position.

Tony Zammit Cutajar, who heads one of the large importing companies in Malta believes the budget will mean more taxation including the probability that tobacco products are to be subjected to more tax. He expects a cost of living increase – already suggested in the Sunday Times 15 November at Lm1.75 – and as is highly expected, additional charges on water and electricity to make good for the increase in the price of oil.
If Zammit Cutajar were to carry the budget briefcase himself he would ensure that among the measures announced for 2005 would be:
- some fiscal incentives to kick start the economy;
- more investment in road infrastructure;
- no more Dar Malta’s in Brussels or costly projects to house Parliament;
- a serious effort to clamp down on abusers of our social security system;
- a serious and structured plan to reduce government expenditure thereby reducing our national deficit; and
- investment and incentives to generate new productive jobs.

Financial controller Boris Farrugia, who works with Malta’s largest construction company, told The Malta Financial and Business Times he would like to see company tax lowered to a rate less than the effective rate of 35 per cent.

Rent laws
Farrugia, like AD’s chairman Harry Vassallo and others would like to see drastic changes to the rent law to reflect the true ownership and value of the property rented. “This will enhance the rehabilitation of old properties as well as encourage rented properties,” said Farrugia who fears a surplus of empty properties.
Farrugia explained what he expects could be done: “Twenty-five years ago in 1979 all Government property was rented out at between Lm90 to Lm120 per annum. Take the minimum wage then and today and the inflationary rate after 25 years. Take the rent collected then and today. It is calculated that if the Government had to increase the rent to an average of Lm400 per annum for the property, the government will immediately increase its revenue stream by some Lm35 million. In a sense we are all subsidising those rents because they should increase, but instead we are forking out more money in taxes to make up for the shortfall in government revenue.”

VAT on conferences
Farrugia would like to see VAT removed from conference organisation: “The VAT on conferences at our hotels is not refundable because it is blocked. We have local and foreign conferences that cannot benefit from VAT refunds, making it difficult to compete.”

VAT on solar water panels and photovoltaic equipment
VAT on solar water panels and photovoltaic equipment should be levelled out at five percent for all equipment and not merely for new meters. “The chance should be given for all to go Green.”

Reduction on Eco contribution
Farrugia suggests the budget should include guidelines to achieve ECO reductions or exemptions on the Eco contribution. “The ECO tax was inflicted on all and sundry overnight with no sign of reprieve. This has affected our operational costs on truck tyres, batteries, oils and lubricants; along with the increase in diesel and the cost of dumping construction and demolition (C&D) waste has created havoc. There should be exemptions from the eco-contribution.”

Public transport
Polidano’s financial controller calls for a subsidy for the purchase of building equipment for contractors. He argues: “Bus owners are being subsidised by government – the public - to purchase new buses. When do building contractors get subsidised to buy new trucks, cranes and plant to revamp their fleet and up their standards to EU requirements?”

Renovation of old houses
If Boris Farrugia were finance minister he would make changes in the rates applied for the dumping of construction and demolition waste. Farrugia told The Malta Financial and Business Times that a rate differentiation should be made between waste from new build, which and the renovation of houses in the urban cores which should pay a lower rate.

Boris Farrugia would like to see several changes that relate to the construction industry and he has several gripes to make about the Malta Environment and Planning Authority. Farrugia believes MEPA has a role to play in ensuring the rental market is revived and calls on the government to introduce measures that will ensure processes at MEPA are speeded up.
“The changes in the rent law have to reflect the Government's will to really expedite matters at MEPA. Believe or not we are still awaiting clearance of the Cassar Torregiani villa from MEPA and have been doing so since August 2003. We have to open the Hotel by February 2005 so we have to clear the construction of the villa. We have to build without a permit.”
Farrugia said there is a case to be made for certain permits to be approved as soon possible: We have applied for various developments of low cost apartments in areas such as Zurrieq and Luqa. These would ease the burden of Government finances and housing. We have been waiting for permits for close to two years.” Polidano’s financial controller believes height restrictions to buildings need to be revised: “We need new machinery to revamp our operations and compete with mainland Europe. We have purchased the machinery and still awaiting MEPA permits to increase the building height to accommodate the machinery. The fact is that MEPA and the private industry have different timepieces that maintain different time; our time (speed) is vital for survival whereas MEPA’s timeframe seems to be one of postponement… it seems to make more noise than take action.”
Polidano’s financial controller has many bones to pick with MEPA and sees discrimination: “A lot of hotels in Malta are closing or increasing the number of rooms to increase viability and avoid closure. The Seabank Hotel has increased rooms, the Cavalieri has increased rooms, the Ramla Bay Hotel has increased rooms, all in an attempt to spread the fixed cost base. But Riviera Resort has been trying to increase its stock base from 205 to 255 rooms using the same footprint and maintaining the same skyline and MEPA is refusing at permit. Why?”

Red diesel:
Farrugia would like to see the introduction of ‘red diesel’ as has been introduced in the UK. “In the UK diesel used in agriculture and quarrying (i.e. for plant and vehicles with fixed operational sites - not on public roads - qualify for this red diesel at 42 pence (Lm0.27c VAT included). It is funny that now diesel here in Malta is more expensive then the UK. We now purchase ours at Lm0.34c VAT included.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
Tel: (356) 21382741-3, 21382745-6 | Fax: (356) 21385075 | E-mail