Budget 2015 – The Students’ Initial Reaction Compiled by the Pulse Economic Affairs Review Board Published by Pulse Malta 2015 Contributors to the document: JeanCarl Grech, Jason Agius, Glen Mifsud
© Pulse Malta and the specific authors, 2015
The 2015 Budget embodies the government’s commitment to ensuring that society at large can benefit from the economic stability and successes achieved by this legislation – and possibly previous legislations – so far. Titled ‘Creating Opportunities, Not Dependencies’, the document lays out the government’s vision: a plan ensuring that social welfare mirrors the government’s objective of creating opportunities whilst at the same time discouraging dependencies with guarantees of sustainable social protection.
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he Minister responsible for Finance declared that the budget for 2015 is based on the strategy of making work pay. The financial plan is beleaguered at incentivizing and
gratifying work effort, discouraging dependency on the social security system whilst at the same time instituting measures to strengthen social cohesion and reduce hardship for families on low income. The Government laid out the following objectives ; Achieving a healthier economic growth rate, Increasing employment, Reduce burden on families and industry, create a business friendly environment & Creating opportunities through public–private partnerships.
One of the pillars of this budget were the measures undertaken within the social sphere. One social group that was of prominent importance in this budget were disadvantaged people, where a lot of measures were put forward in their aid as part of this government’s fight against social exclusion. s part of the government’s fight against social exclusion, measures were put forward in aid of disadvantaged persons. It has been said that employers who employ disabled persons will be exempt from paying the respective social security contributions and will also receive a tax credit equal to the wage of the employed individuals, up to a maximum of €4,500. Other incentives for companies employing disadvantaged persons include a 50% reimbursement of that employee’s wage, up to €5000 and calculated pro rata where part time employees are employed on whole time basis. Secondly, the law will be reinforced so that now, 2% of the people employed by companies having more than 20 employees must be people with disabilities. Penalties will apply if this requirement is not met. The government also put forward incentives for those disadvantaged themselves, whereby disabled people who manage to find a job will still be receiving their full disability pension, irrespective of their wage. Finally, there are also plans to develop residential homes for disabled persons.
Pensions were also a ‘hot’ topic within this budget, as they have always been. This government is fully aware that pensions are a sort of ticking time bomb waiting to explode and as a result, put forward the following measures to try and curb this problem whilst at the same time ensuring that our senior citizens have sufficient income to lead a somewhat comfortable life. Certain fiscal incentives are being introduced in respect of Third Pillar Pensions and the individual savings account scheme. At the same time, however, it is still worth keeping in mind that this pillar is rather regressive, in the sense that only those who have extra income can manage to enrol in it. The budget also specified that pensioners will continue to receive the COLA in full and that employees with the Civil Protection Unit will be entitled to a retirement pension after 25 years of service – nothing new in this regard.
The budget document also mentioned other social measures, notably those related to Maternity Benefit. In this regard, the maternity benefit payable by the government and which is applicable for the last 4 weeks of the maternity will increase by more than €6 per week as of January 2015. In the case of women listed as self-employed, the maternity benefit will increase by more than €73 per week over the first 14 weeks of entitlement. Another novel measure when it comes to maternity leave is that a new fund is to be set up to cover the cost to pay the maternity leave benefit payable by the employer. What is interesting about this fund is that the employers will finance it on the basis of total number of employers so that the burden will be spread over all employed and not only borne by those employing women. This is aimed at having a level playing field for both men and women seeking employment. Other social security contributions paid by government will include a grant of €300 paid to persons aged 75 years or over and a bonus of €200 to those aged between 62 and 74 and are retired but are not entitled to receive a pension but who have paid at least 5 years of contributions. The bonus will be €100 to those who paid contributions for more than 1 year but less than 5 years. Government also confirmed the continuation of the free childcare and Breakfast club services and also promised to pay a supplement of €400 per child ( which goes down to €200 after the 4th child onwards) provided that each child must have a school attendance record of at least 95%.
The EARB notices that the government is expecting the economy to grow by a further 3.5% in real terms in 2014, a 0.5 % on the 3% increase of the current year. Current unemployment level is set at around 6% which is set far lower than the 11.9% recorded in the Euro area.
The government is expecting the total proceeds to reach €3,360 million whilst total expenditure is expected to reach €3,435 million. The EARB welcomes the fact that the Government is pointing at reducing the level of deficit even further from 2.1% to 1.6% in 2015. The Debt-to-GDP ratio is expected to increase to 70.1% from a level of 69.8% in 2013. In 2015, the debt-to-GDP ratio is expected to fall to 69%.
The Economic Affairs Review Board welcomes the reduction in personal income tax rates. Noting that a continued shift from direct taxation to indirect taxations is occurring, similar to what is happening in other jurisdictions. A reduction of the 29% tax bracket to 25% took place in this year’s budget, thereby increasing the 25% tax bracket up to €60,000 annual income. Furthermore as a measure to ensure consistency, reduce bureaucracy and even enhance tax revenues, the current system regarding the transfers of immovable property situated in Malta was also revised. As a general rules the transfers of immovable property will be subject to an 8% final withholding tax, to be levied on the transfer value (certain exceptions apply).
Moreover to further encourage the professional development of water-polo players, they shall be taxed at the preferential rate of 7.5% on their income derived from the sport. One should also note that the VAT rate on e-books will be reduced from 18% to 5%.
Reduction in registration tax on quad bikes Along with the removal of registration on motorcycles’ the reduction in registration on quad bikes is another positive measure that should serve as an incentive for people to consider alternative modes of transport that are more eco-friendly and help in reducing traffic.
Studies on facilitating pedestrian access to Valletta Such studies are welcomed since they encourage people to walk through such places, yet these studies should be extended to other areas.
Bus fares will not increase The announcement that bus fares will not increase is crucial for the new public transform reform to be successful, yet the most important factor will be the service that will be offered. After the
failure in the previous reform, this attempt must be successful. Punctuality will determine the outcome.
Motor vehicle licence and registration taxes A minor increase in licenses will not be sufficient to encourage people to purchase modern and efficient vehicles. The prices of new vehicles in Malta are much higher than the EU average. Hence the government should first consider a substantial reduction in the prices of new vehicles.
Credit for use of school transport The government’s initiative to encourage the use of school transport should have an immediate positive effect on traffic. Other initiatives such as the use of bus lanes for people who make use of car pooling show that the government is seriously tackling the problem of traffic.