Editorial | A budget for a new direction

Clyde Caruana will present the second budget of this legislature on Monday in politically unfavourable circumstances.

Whatever he says will be overshadowed by the Appeals Court decision to confirm the annulment of the Steward hospitals deal. The damning ruling has cast a long shadow on the government over the behaviour of senior public officials involved in the deal.

The court went as far as ascribing collusion to government officials and questioned why they chose to defend the interests of the concessionaires instead of the State.

But possibly more significant from a political aspect is the pending magisterial inquiry into the hospitals deal, which is now very likely to be concluded. The implications of the magisterial inquiry are of a criminal nature and could point an accusing finger at former senior government officials involved in the deal.

The Court of Appeal’s decision to annul the contract is significant and has ramifications on the governance structures of this country. Good governance is one aspect that prospective investors look at when deciding where to put their money.

After the saga that Malta went through to get out of the Financial Action Task Force’s greylist, the government must clearly show it means business in ensuring the machinations behind the hospitals deal do not happen again and all those who may have done wrong are brought to justice.

Within this context Caruana has a duty on Monday to not only present the government’s financial programme for next year but also put prospective investors’ minds at rest that the government is a serious partner that cherishes good governance and transparency.

This is all the more important in the face of a bleak international outlook that requires a nimble and creative government to be able to attract and retain investment.

Caruana should lay out the timeframes for the anticipated changes to the corporate tax regime that will see the introduction of an effective minimum 15% tax rate for companies with a global turnover of €750 million.

It has been reported by sister newspaper MaltaToday that Malta has informed the European Commission of its intention to delay the introduction of the top up rate by six years. The reason given was that the tax authorities need more time to prepare for the eventuality.

Even if Caruana confirms the delay on Monday, he should still lay down a clear timeframe of how the change will happen. Businesses need clarity and stability.

Although the minimum tax rate impacts large companies, Malta should move towards a corporate tax regime that is distinct from personal income tax and which treats all businesses in the same way irrespective if they have foreign shareholders or are completely home grown.

Any incentives in the form of tax credits; any change in tax rates to lower the burden, must apply across the board thus giving domestic businesses a breather.

But the Finance Minister must also ensure that people’s purchasing power is strengthened. With the cost of living adjustment hitting a new record, people in certain wage brackets could end up be taxed at a higher rate. It is thus imperative, at the very least, that Caruana announces adjustments in the personal tax brackets to ensure that the COLA increase does not end up penalising workers who will be charged at a higher tax rate.

Furthermore, the Finance Minister must also consider wider tax brackets and possibly the inclusion of another rate to give the middle class a permanent tax cut.

This will help mitigate the impact of inflation on people’s pockets.

Monday’s budget must keep in mind existing realities but it must also provide a blue print for a new economic direction that targets high value added sectors.