Budget to launch process

Prime Minister Lawrence Gonzi yesterday all but ruled out a change in income tax bands in today's budget but he gave a clear hint such a process would be set in motion and that a positive fiscal move would be announced.

The Prime Minister said economic performance for the third quarter of the year had been good and he expected the "forward-looking" budget being presented in Parliament this evening "to reflect that".

Dr Gonzi, who is also the Finance Minister, told The Times yesterday the decisions taken were in line with the pre-budget document published last July, which states that the government is planning to engineer a shift from direct taxation towards environment-related taxation as part of a review of the entire tax system.

A guarded Dr Gonzi said the budget would "start a process" but he added that this did not mean there would be changes in the income tax bands at this stage.

Nor are any changes expected to the VAT rate, though a number of initiatives to spur the economy are likely as are more investment in health and the environment and incentives for industry.

Some change to the cost of living adjustment is inevitable, though it remains to be seen whether the rise will be anything close to union demands - heavily opposed by employers - for a further 50c to Lm1 per week to counter the recent surcharge increase in fuel and electricity bills.

The government's stated priority, however, remains getting the deficit below the three per cent of GDP benchmark that will enable Malta to introduce the euro.

Dr Gonzi was yesterday still putting the finishing touches to the third budget of this legislature - and his second as Prime Minister - after holding another long meeting with his finance team, which includes Parliamentary Secretary Tonio Fenech.

On Saturday, the Prime Minister held a two-hour presentation for Cabinet members, the parliamentary group and Nationalist MEPs at Auberge de Castille in which he outlined many of the measures. That was followed by a two-hour meeting of the core finance team, who met again yesterday.

Work on drafting the budget has been going on for the past two weeks though consultations have been held with various sectors since the pre-budget document was launched and with the social partners that make up the Malta Council for Economic and Social Development.

In between working on the final measures yesterday, the Prime Minister attended the 10 a.m. Mass yesterday at the Fgura parish church, when the town was celebrating Fgura Day. There was a special Mass at the Finance Ministry in Valletta where the meeting of the budget team was held.

Mr Fenech said yesterday evening: "We are now closing off what we have agreed. We are cross-checking the figures and preparing presentations for the media before sending the budget for printing (this) morning. We are in for a late night!"

An extensive report of the budget speech as well as initial reactions will be carried in The Times tomorrow.