Budget 'lacked' measures to boost purchasing power

The Chamber of Commerce and Enterprise said it was pleased to note that a number of its recommendations to the government for the budget have been taken on board.

These included the removal of the provision whereby public and national holidays falling on weekends are added to the number of optional leave as well as measures to curb unemployment benefit abuse, the chamber said.

It expressed doubts in regard to the potential effectiveness of measures relating to innovation, research and raising the female participation rate in the labour market.

The chamber noted that the Lm95 million target for the 2004 structural deficit seemed to be achievable.

Whilst acknowledging that no increases in income tax and value added tax were announced, the chamber said no fiscal measures were taken to increase the purchasing power. This, besides the mechanism to compensate retroactively for cost of living increases which has a dual-effect: it boosts the nominal income of workers and beneficiaries which goes to support nominal demand and, the same time, it has a negative effect on labour costs and competition unless it is complemented by an improvement in productivity.

The chamber said that the policy of granting cost of living increases across the board should be reviewed.

The figures presented in the 2005 Financial Estimates, published by the Ministry of Finance, suggest that the country has reached saturation point in terms of revenue collected from the formal economy. This is a clear indication that the honest taxpayer cannot be wringed further. Besides, it is socially unjust for the tax-abiding portion of the population to continue to pay dearly for the dishonesty of others.

To this end, the chamber suggested alterations in the current taxation policy to render tax evasion less viable. It continues to believe that in a lower tax scenario more people will be encouraged to regularise their fiscal position and this would ultimately enable further easing of the tax burden.

The chamber welcomed the government's decision to eliminate another anomalous situation arising from previous budgets related to taxation on sales of property inherited between 1992 and 2003. In principle, the chamber believes that inherited property should not be subject to tax when it is disposed of. It expressed disappointment at the government's failure to address the situation related to pre-1995 rent agreements.

It said it could not condone the decision to increase the departure tax on air travel originating from Malta.

Regarding privatisation, the chamber recommended a thorough consideration of the needs and benefits of involving a strategic partner or selling shares to the public.

It commended the Prime Minister for accepting recommendations made by the constituted bodies on the electricity surcharge even at a late hour. At the same time, serious education drives should be made to encourage the public to use electricity intelligently and efficiently.

The capping of the surcharge on hotels and factories was a positive decision as were the incentives for investment in alternative energy sources, the chamber said.

The chamber also welcomed the application of excise tax and VAT on the price of kerosene. It felt such a measure to curb abuse should not have been implemented across the board but directed solely at known abusers.