A Willy Wonka 2022 budget exercise

The fly in the ointment of every budget is the topic of enforcement. This is another admission that not enough enforcement has been done in curbing tax evasion


Last Monday finance minister Clyde Caruana presented his 92-page budget speech. The golden number was the COLA grant of a €1.75 weekly – worth less than a daily cost of one coffee.  This is the wanderlust that worked the enigmatic C.O.L.A magic formula - a scheme that is based on the annual cost increase of a specified basket of items.

This formula seems to be cast in stone as no minister is bold enough to upset the apple cart and come out with a more efficient mechanism after discussions with stakeholders at the MCESD club.  The budget is a courageous one that continues to borrow to support another national deficit of 5.6% with national debt reaching 61.3% of GDP.

One cannot increase welfare handouts unless there is accelerated GDP growth following two years of pandemic.  Malta Enterprise prides itself that the wage supplement saved 100,000 jobs and assisted 16,000 fragile businesses.  The proof of the pudding is in the eating and the 2022 budget has continued to borrow extra millions to help low-wage earners, pensioners and other beneficiaries.

Some of the proposals are linked to promises made in previous years and one is expected to be conscious of this repetition. On the economic front, real GDP is set to grow by 6.5% on that achieved this year - itself a low performer.  A positive note is a 2.2% increase in employment expected for 2022, while unemployment expected at a relatively low at 4%.  More job creation by Malta Enterprise that wants to set up the Blue Med Hub to attract start-ups and small enterprises.

Equally interesting is the proposal by Government in extending the concession on the reduction of stamp duty from 5% to 1.5% when family businesses are transferred to their children or younger generations. There are many aspects regarding well-being in this budget especially a massive afforestation project at Inwadar Park planting over 50,000 mature trees.  This creates a new National Park costing €20 million over a five-year period.  A new football stadium will also be built in Msida and sportsMalta will also invest in a national rowing tank. The Outdoor Velodrome project will be incorporated into the ongoing Ta’Qali project. Gozo and Gozitans will be enjoying an Olympic level swimming pool as well as a new sports pavilion in the heart of Victoria.

Another turnip in the soup is the controversy about water and electricity bills issued by ARMS.  The penny has dropped following national protests by households over excessive bills that a new system will be introduced, whereby consumers can save unused cheaper units so that they can be used during periods of higher consumption.

Last year, the budget promised a new reverse osmosis plant in Gozo and again this year reference was made to an investment of €11million - now it will start operation. A “New Water” network will be extended, and the sewage system in the North and South of Malta will be strengthened to help meet demand and improve the marine environment. The hot topic of de-carbonization was a long-term plan to introduce hydrogen transmission using a pipeline to Italy coupled to a strong investment plan in Enemalta’s Distribution network.

The frequent power outages that occurred this year was blamed on the surge in demand and the low maintenance of the aging distribution network. Malta Enterprise will launch a scheme designed to assist enterprises in converting fossil fuel-powered vehicles to electric-powered vehicles and other solutions.  At last there is the plan to install around 1,200 extra charging points nationwide.

So far only 1% of total cars on the road are hybrid or fully electric. The problem centres around the high cost of electric vehicles which goes beyond the budget of many. It is encouraging to notice the initiative of a grant to launch a new scheme where vehicles such as minibuses, coaches and trucks on which roof photovoltaic panels are installed. This may encourage minibus and coach operators to reduce smoke emissions through the installation of diesel particulate filters (DPF) and selective catalytic reduction systems (SCR).

Motorists are incentivised to change existing oil guzzlers for an electric vehicle benefiting from an exemption of registration tax and payment of the annual road license for a period of 5 years from the date of first registration. The financial grant for the purchasing of electric vehicles or plug-in hybrid will be increased by €3,000 to €11,000. The funding for the vehicle scrappage scheme will increase by €1,000 to €2,000. An extension of the night charging electricity rate applicable to residential homes for individuals who want to charge the car battery at night.

A budget novelty is welcome news that public transport will now be free from next October for all residents. Add this to the success of the Malta-Gozo fast ferry, prompting government to increase the number of quays to provide alternative routes.

It is good to hear that Transport Malta is investing in changing the vehicle registration system together with the Vessel Tracking System to a more modern one. The RRP funds are partly allocated to making a digital investment to modernize the register of ships, so that Malta continues to strengthen its place in the maritime field. Transport Malta funded the shore-to-ship project in the Grand Harbour while calls for tenders will be published in connection with the shore-to-ship project at the Freeport.

Again, the budget lauds the drive for increasing renewable energy by including two projects for batteries for energy storage, and a fund will be set up for government buildings to be fitted with solar panel systems.

More on de-carbonisation is a scheme for both public and private entities to invest in green and environmental projects with a view to creating a surplus in carbon credits. These can be voluntarily purchased by other public or private entities with a view to meet their carbon targets.  All this will be monitored by an ad hoc board to supervise the de-carbonisation implementation.

A €470 million investment by Indis will see industrial zones modernised apart from assisting aircraft maintenance companies in their infrastructural needs.

Nothing will detract our attention from the fledgling financial services sector which is labouring under a dark cloud of a grey listing by FATF.   Next year, the long awaited reform for this sector includes a drive to intensify the simplification by MFSA of regulatory processes and the institutional architecture, the deepening of the national payment infrastructure, the consolidation of identity management, the establishment of a committee to reform the law for financial services, modernize the tax structure in Malta, and encourage talent in financial services.

The fly in the ointment of every budget is the topic of enforcement. This is another admission that not enough enforcement has been done in curbing tax evasion.

All in all, as they followed the budget reading, many will have opened their chocolate wrappers in the Willy Wonka tradition, yearning for a golden ticket.

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