- Tax revenue for 2024 up, tax evasion down
- Income tax bands to be tweaked
- Increase in children’s allowance, pensions expected
- Minister says he’s been warning about need to change TCN policy for six years, but warns economy will collapse without foreign workers
- 30-35% of KM Malta airlines to be privatised
- Energy subsidies will not be phased out
Every worker who pays income tax will benefit from a tax cut to be unveiled during the October 28 Budget, Finance Minister Clyde Caruana has said.
The tax cut, which Robert Abela has said will be “the biggest in history”, will cost the government “north of €100 million”, Caruana told a Times of Malta event.
The minister was speaking in conversation with Times of Malta editor-of-chief Herman Grech.
Caruana stopped short of providing much detail about how income taxes will be slashed, but made it clear “all taxpayers will benefit”.
What about corporate taxes?
When pushed by industry representatives about reducing corporate tax rates, the minister said he was broadly in favour of that but that it was not the right time to do so.
First, he said, Malta must agree with the EU on how it will reform Malta’s corporate tax regime in line with an OECD-led global initiative.
Malta is currently in talks with Brussels on how to do that, he said.
Currently, some foreign firms get to pay an effective 5% tax rate by benefiting from a 6/7ths rebate of their 35% tax rate. Malta has agreed to reduce that to 4/7ths, reducing the effective rate to 15%.
But Malta wants to bring that down further through a series of Qualified Refundable Tax Credits (QRTCs). Negotiations with Brussels are focused on just how many QRTCs it will be allowed to pay out, he said.
Smart spending? Not much of it
Caruana made it clear he has little faith in the government’s ability to spend money wisely.
When pushed by academic Marie Briguglio about a years-long reluctance to raise taxes or introduce new ones, the minister blamed Malta's "Mediterranean" culture.
If the government increased taxes, it would most likely be wasted on unnecessary things, he said. “Let's collect what is due, but I don't see the need to collect more by imposing new taxes or increasing the rates,” he said.
The minister’s scepticism about state spending extended to the University of Malta, which got a hammering.
“The University needs to pull up its socks,” he said, noting that his ministry has been chasing the academic institution to file its paperwork “for years”.
“I’ve had enough of it,” Caruana said.
KM Malta Airlines to be part-privatised
The minister also revealed that around one-third of KM Malta Airlines will be partially privatised in the coming years.
The EU Commission has made it a prerequisite for “30%-35%” of the national airline to be sold to the private sector, he said. And Caruana said he was largely in favour of that and wants it to happen “ASAP”.
The airline is doing well, he said, matching its predecessor Air Malta’s effectiveness while employing one-third of the workforce.
Revenue up, evasion down
Caruana said tax revenue was up €300 million in the first six months of this year and is on track to outpace the €500 million increase registered in 2023.
That was in large part thanks to improvements in tax collection, he said. An AI-powered tax analysis system first announced in May 2023 is now up and running, he said, and analysing all VAT returns. By the end of the year it will be assessing income tax returns and corporate income too, he said.
‘Years’ of warnings about foreign workers
Caruana also retread familiar ground when discussing Malta’s contingent of foreign workers.
As Jobsplus head, he pushed for the country to import thousands of third-country nationals to service industries. And he has no regrets about that, he says.
“I stand by what I said then,” he said, noting that the country’s economy requires an influx of workers to keep growing.
But Caruana said he has also spent years privately warning his colleagues about the infrastructural repercussions of booming population growth.
“I've been warning about the need to change for six years or so,” he said.
The debate took place three weeks before the budget.Live blog
Time's up
11.12am We’re out of time, I’m afraid. The event comes to an end. No time for all the questions in the room, let alone those from all of you readers.
Thank you for having joined us. We’ll have a summary of Caruana’s key talking points available shortly.
Looking to the future?
11.10am Malta could be an outstanding country but it doesn’t use its strengths, says entrepreneur Reinhold Karner.
The government seems to be too stuck in the present rather than looking at the future, he says. Caruana says he gets his point. “We’re not perfect, but if I look at the broad picture we’re not bad when compared to other countries. Let’s appreciate what we have.”
Slashing taxes for businesses?
11.07am Companies that file and pay on time should get a reduced 25% tax rate, Marthese Portelli from the Malta Chamber argues.
Portelli also welcomes talk about government being penny-wise when it comes to expenditure. But when will government finally reform public procurement? It’s something the Chamber has been hammering for years.
Caruana responds: He says he’s in favour of reducing taxes for businesses, but at the appropriate time. The minister makes no mention of a public procurement reform.
A damning indictment of University
10.55am Michela Formosa from student law association GħSL asks about subsidies to private schools. Couldn’t the money used for these schools put to better use within the education sector? And isn’t it a desperate situation for the University to be running a deficit?
Caruana says the University of Malta is not doing what it needs to do to get its finances in order. The ministry has been chasing them for years, he says.
"They should pull up their socks and roll up their sleeves and generate income," he says. "I've had enough of this."
As for private schools, Caruana notes Church schools are also going to be getting a significant subsidy. A new collective deal for teachers meant costs for such schools were going to increase by 50%. And many parents could not afford that fee increase.
Schools could have passed that increase onto parents, but then the state would have to accommodate the hundreds of students who shifted into the public sector, he says.
"Popular, perhaps not. But logical, yes," he says.
The value - or lack thereof - of GDP
10.52am Maria Giulia Borg from the Faculty of Social Wellbeing fears Malta is painting itself into a corner by focusing on growing GDP to keep debt in check. Do we really have so much faith in GDP?
Caruana says GDP must keep increasing because people’s expectations keep increasing.
“What we really need to address is how that economic growth comes about," he says.
The debate drew many social partners. Photo: Matthew MirabelliWhat's in it for the creative sector?
10.47am Maria Galea from the Malta Entertainment Industry and Arts Association notes that very little is ever said about the creative sector. Will this budget help the sector? And can we expect money for local filmmakers?
Caruana says the budget is still in the making. “I have until the end of next week to definitively close the allocation of resources,” he says. “But I can assure that I’ve taken note of this a few weeks ago.”
Malta's low spending on R&D
10.44am Malta spends 1/6th the EU average on R&D. It spends very little on decarbonization, the minister is told
Caruana says Malta doesn’t have much capacity to absorb R&D money. But he says ST Microelectronics’ plan to overhaul their production methods will be a big boost.
“This is where the country needs to move in the next years,” he says. "This will take years."
COLA not yet established but in €5-€6 region
10.40am Caruana acknowledges that COLA is imperfect, but says it does the job. The COLA rates for 2025 has not yet been set as it depends on inflation data for September. But it will be around €5-€6 a week.
Too much money for subsidies for the big guys?
10.36am Il-Kollettiv activist Wayne Flask tries to catch out the minister by asking him if he knows the price of 1ltr carton of milk. Caruana does, it’s €1.15.
Flask’s question focuses on government subsidies. Government has spent over 12% of GDP on subsidies last year, he says. The little guy is the loser. How does he square that circle?
Caruana says he differs “vehemently”. Transfers of payments (to low income people) have never been as high as they are now, he says, citing spending on childcare, pensions, and various other benefits.
And as an aside, Caruana says there will be an increase in children's allowance in this upcoming budget.
Measuring wealth and the tax bogeyman
10.26am Economist and academic Marie Briguglio intervenes.
Wealth is not just revenue streams, she says. That’s just what we choose to measure. Given that Malta’s GDP growth is outpacing the EU average, isn’t Malta running into diminishing returns? Shouldn’t we be refocusing on other ways of measuring wealth?
She’d like the government to assess its budgets for their well-being impacts – something various other countries have started doing, she says.
Briguglio also pushes back against the idea that taxes are a bad thing. Taxes are a massive tool. It’s not “good news” to always talk about no new taxes, she says.
Government, like a parent, has a duty to set rules and lay down boundaries.
Caruana says work on well-being is being piloted by former president Marie-Louise Coleiro Preca.
And as regard taxes, he implies he does not trust government to spend taxes wisely. Increased tax revenue would most likely be blown on things we do not need, he says.
"Let's collect what is due, but I don't see the need to collect more by imposing new taxes or increasing the rates."
Financial literacy and investment in R&D
10.22am Matthew Caruana from Junior Achievement Malta asks: what is government doing to improve people’s financial literacy and money management?
He also asks: what is being done in terms of research investment to kick off actual innovation, rather than more of the same?
Caruana says the Economy Ministry will be launching a number of initiatives focused on R&D, tech literacy and AI. He also describes financial literacy as “a must” – especially in terms of driving up adoption of third pillar (i.e. private) pensions.
Homelessness and the money to address it
10.19am What will government be doing for quality of life, asks Pierre Fava. “Government spends money but it sometimes seems it’s not being put to good use,” he says.
He raises another issue: Homelessness is very visibly on the rise.
Caruana says Social Policy Minister Michael Falzon has also highlighted similar concerns about homelessness. Money will be allocated to address this, the minister says.
Never mind the oil prices, subsidies here to stay
10.15am Philip Fenech asks about energy prices.
Does the government have a contingency plan for any potential rise in prices?
Caruana acknowledges that prices might rise due to tensions in the Middle East. But the government’s policy “is not going to change”. And the budget deficit must continue to drop, by hook or by crook.
Q&A with audience members
10.11am We’ve now turned the focus onto our audience for a Q&A session.
Paul Abela from the Chamber of SMEs kicks things off.
He urges the minister to not intervene in the private sector, with an exception of Malta Enterprise encouraging investment in specific sectors.
He also encourages government to introduce a level playing field when it comes to corporate tax.
Caruana says it's not the right time to reform corporate tax. "First we need to sort out Pillar II issues," he says. "I don't want to play with tax rates when we're making such an important change. I first need to see how the economy reacts to such changes."
But when the time is right, Caruana says he would have "no difficulty" to reduce taxes for businesses.
Energy subsidies
10.08am Caruana says the government will be spending €460m on energy subsidies, collective agreements (teachers, health workers, public service), tax cuts and an increase in social benefits next year.
“That’s 2 percentage points of GDP and more than any other country in Europe,” he says.
He makes it clear he disagrees with the EU and IMF’s push for us to phase out energy subsidies. Countries that allowed citizens to absorb price shocks did poorly, he notes.
“Our idea of subsidizing until prices return to where they were is paying off,” he says.
Subsidies will ‘only’ cost the government 0.7% of GDP next year, compared to more than 2% previously. Malta’s debt-to-GDP ratio stood at 43% before the COVID pandemic. Now, after all the pandemic aid and years of energy subisidies, it stands at 48%. It’s not a big increase, given the benefits, he says.
A budget vox pop
10.05am Mark Laurence Zammit and Emma Borg spoke to citizens about their wishlist for the Budget.
Here's what they said.
... and neither is traffic
9.57am Will there be anything in the budget to incentivise alternative transport?
Caruana says the transport minister [Chris Bonnett] is about to present a strategy to cabinet in the coming weeks. So any plans will have to wait until after that.
Herman Grech and Clyde Caruana in the debate held at Corinthia Palace. Photo: Matthew MirabelliCartels aren't going anywhere...
9.54am Caruana is asked about his statement, made at this event last year, that Malta’s economy is dominated by cartels. Does he stand by that?
“Has something happened to change my opinion since last year?” he asks with a chuckle.
“This is something we have to live with. The markets that we have will inherently remain small forever. “
[Read our story, published today, about the competition regulator having been without a director for the best part of a year. We can't help our small size but we're not really helping ourselves here].
Stabbilta 'did its part' for inflation
9.53am Inflation is going down, he says. The Stabbilta’ scheme “did its part”, Caruana says. But he makes it clear it’s going down globally.
30-35% of KM Malta Airlines to be privatised
9.52pm Here's a bombshell: The EU has made it clear 30-35% of KM Malta Airlines must be privatized in the near future, Caruana says.
He says he’s in agreement with that and would like it to happen “ASAP”.
"It has to happen," he says. Unequivocal.
Tight-lipped on HSBC
9.50am Caruana is also holding back when it comes to the rumoured takeover of HSBC by APS.
“For the time being, I’ll leave it at that. But in the future if I need to voice my opinion, I will do so.”
Pensions to be broached in budget
9.49am Onto pensions: Caruana says a section of his budget speech will be announcing something related to occupational pensions. But he’s keeping his cards to his chest.
Caruana's idea of a taxation stick
9.45am “The entire economy would collapse without TCNs,” Caruana acknowledges. “We need foreign workers. The issue is, how many?”
Caruana floats an idea to encourage a shift to higher-value economic sectors; what if companies in labour-intensive, low-productive sectors were to pay higher taxes?
He makes it clear this is his view, not government’s.
'I stand by what I said at Jobsplus'
9.41am "In my previous life, at Jobsplus, I used to say the country needed more foreign workers. And I stand by what I said back then," he says.
Caruana says he would also quietly warn that the country had to watch where it was heading.
"The country definitely needs more labour, due to the size of the economy. But I've been warning about the need to change for six years or so,” he says.
Malta's economic model
9.40am Over to Malta’s economic model. Caruana says the people have made their views clear.
The negative externalities of the current system are clear to see, he says.
The minister cites the example of a delivery firm that complained to him about needing to hire more drivers to compensate for traffic. “That means less profits, and it will impact the economy at large,” he says.
Tax evasion "down significantly"
9.37am Caruana says tax evasion is down significantly and he expects it to drop even further.
“I won’t say that by the end of this legislature tax evasion will be history. But we will have come a long way,” he says.
Caruana stops short of highlighting any particular sector as a tax-dodging gold medallist.
Tax revenue likely to be up by well over €500m this year
9.35am In 2023, tax revenue was up by €500m. This year, it’s up €300m in the first six months. So Caruana expects it to be up by more than last year’s figure by the end of 2024.
Now, 90% of business returns are filed in time, he says. Before it was as low as 30%.
Our AI-powered tax cheat net
9.33am It’s been roughly 18 months since Caruana announced plans to introduce algorithm-driven “AI” software to catch tax cheats. The system is now up and running, he says.
Right now it’s being used to screen businesses’ VAT declarations. It will then be rolled out to corporate tax income by the end of October and personal income tax by end of December. Import and export payments should be included by January.
He highlights the time savings: it would take officials five months to check a sample of declarations. Now they can check everything, not a sample, within just two days. The same goes for tax refunds: these can be analysed and processed within a matter of days now, he says.
Capex to keep rising
9.31am Capital expenditure (i.e. infrastructure) should be continuing to rise, he says. Given the reliance on EU funding for this sort of spending, the biggest concern is to ensure absorption of all those funds.
Ministers, over to you
9.30am Caruana is quite upbeat about the EU’s new-look excessive deficit procedure. It’s a reasonable system, he says, and the caps placed on spending are fair.
He’s pushed on spending by specific ministries.
"My goal at the end of the day is to keep in check government’s fiscal position at large. But ultimately each minister should be responsible for his own doing," he says.
Where is Malta's corporate tax regime heading?
9.28am Caruana hopes to have some announcements about the future of Malta’s corporate tax regime by the time the budget comes around. The government’s currently talking to the European Commission about it.
Malta wants its imputation system to remain as it is, allowing foreign companies to pay a 35% tax. But instead of getting a 6/7ths rebate, they’d pay a 4/7ths one leading to an effective 15% rate.
But here’s the kicker: the government wants to then pay such businesses Qualified Refundable Tax Credits (QRTCs) that would help them reduce that 15% rate.
The issue is how many QRTCs Malta can dish out. The government would like more, the EU Commission would like fewer.
Debt not a concern
9.23am Caruana brushes aside concerns about national debt hitting the €10 billion mark. It’s well within control given the size of the economy, he says, reiterating what he always says: it’s not the absolute number that counts. It’s how much debt you have relative to GDP.
Every worker to benefit from cut
9.21am People earning 25k or 30k will be benefiting, he says. And when pressed, Caruana says every worker who pays income tax will benefit from the measure.
"We won’t take anything, we’re just giving back," he says.
He confirms that income tax bands will be tweaked in the coming budget.
Income tax cuts will cost 'north of €100m'
9.20am Caruana speaks about this promised tax cut. It’s part of Labour’s manifesto, he notes. The spike in energy prices as a result of the Ukraine war meant the government was unable to do it sooner. Now that prices are coming down, the tax cut can be implemented.
Caruana stops short of providing much detail about the upcoming tax cut. But it will cost well over €100 million, he says. “So it will be sizeable and all taxpayers will benefit.”
Quick-fire questions
9.16am The event begins. And we kick it off with a series of quickfire questions for the minister. His answers are in the italics.
1. Who will be the biggest beneficiary in this year’s budget? The taxpayer.
2. Which sector gives you sleepless nights? I sleep quite well. There are challenges across different sectors, but I sleep quite well.
3. Will pensions be improved in the next budget? Yes.
4. Do you have any regrets over your TCN policy? No. Perhaps we can elaborate later.
5. Is there still time for the people in this room to offer suggestions you'll consider in the budget? Yes.
The great and the good
9.10am Finance. Hospitality. Pharma. Academics. Lobbyists. Activists. Diplomats. We’ve got representatives from pretty much every economic sector in our audience this morning. And they’ll all have some hot-button topics they’ll be keen to hear more from Caruana about.
Welcome
9.06am Good morning and welcome.
We’re at the Corinthia Hotel in Attard this morning, for a Times of Malta event featuring Finance Minister Clyde Caruana.
Caruana will be in conversation with our editor-in-chief Herman Grech, with the focus obviously being on the Budget 2025 speech scheduled for October 28.
We already have one key piece of information about what to expect on the day; an income tax cut which Robert Abela has said will be “the biggest in history”.
Is he all talk and no trousers? Will that carrot come with some unpleasant sticks? What will give to make that tax break happen?