Last year the government collected €500 million more in taxes than it did the previous year, as the tax department cracked down on tax-dodging companies, Clyde Caruana said ahead of the budget.
This year the government expects to collect a further €200 million over last year, and the increase does not include the extra revenue from economic growth, the Finance Minister said as he launched a yearly pre-budget consultation on Wednesday.
Caruana credited the customs and tax departments with having "quietly but effectively" clamped down on tax-dodging businesses and companies that were especially lethargic in paying their dues.
“Compliance has increased significantly, dues are being paid on time and we’re reducing pending tax bills,” he said.
“All the while we did not increase or introduce new taxes and we won’t need to, as long as the department continues to collect what is due to it in a timely manner.”
Last year Caruana had - quite controversially – announced the government will deploy computer software to catch tax cheats. The software will alert authorities when a person or business's declared income does not tally with their accumulated wealth, helping inspectors focus their investigative efforts.
Caruana had previously told Times of Malta that just 35 to 40% of businesses in 2019 declared a profit, despite a booming economy.
On Wednesday, Caruana said the computerised system is currently in its test phase, with results corroborated by human checks.
“The first trial runs already showed that as much as 45% of businesses aren’t paying their dues,” he said.
The Budget 2025 date has been set for some time in October, Caruana confided. But the minister declined to divulge it, saying he would leave that to the prime minister, Robert Abela.
Deficit to drop to 1.5% by 2030
Caruana said Malta’s deficit decreased from 5.3% in 2022 to 4.6% in 2023 but new EU rules compel member states to bring their deficit down to 3% and eventually to under 1.5% in the coming years.
“We will be at under 1.5% by 2030. We have a four-year plan to get there and we won’t even need that much time,” he said.
“Last year I had promised the deficit this year will be at 4.4%. We expect to close the year having achieved an even better figure – 4%. Next year we expect to go down to 3.5% and then to 3% in 2026. And we’ll do whatever it takes to achieve those numbers.”
The government’s capital and recurrent expenditure did go up by €200 million between 2022 and 2023, he acknowledged, but the government also collected €500 million extra in taxes.
“That’s how we’re ensuring the deficit continues to go down.”
EU rules say that member states must run a deficit of less than three per cent of GDP and keep their debt under 60 per cent of GDP.
The deficit is the difference resulting from the government's income versus expenditure at the end of the year. Governments run a deficit when they spend more money than they take in. Debt, on the other hand, is the total amount of money that the government owes.
“There has been a lot of talk about how much debt this government is raking up. As long as the country spends more than it earns, debt is obviously inevitable,” he said.
“Debt increased, yes, but so did economic growth, and had we not done it that way, the economy would have stagnated and we would be worse off now.”
Despite the high government expenditure – especially in energy subsidies and social incentives – the country’s debt will remain at 50.4%, he said, which is 10% less than the EU limit.
€160 million in energy subisidies to continue with EU’s blessing
This is why, Caruana said, the government will be able to continue funding substantial energy and food subsidies with the EU Commission’s blessing.
And the good news is that as inflation dies down and stabilises, the government will need to fork out fewer and fewer millions each year to keep prices as they are, he insisted.
The government expects to fork out between €150 and €160 million in energy and food subsidies next year. That translates to 0.7% of the country’s GDP, as opposed to the 1.4% forked out last year.
“Only we are doing this in the EU and only we will continue to do this,” he said.
“The economy did not feel the multiple shocks effect that would have occurred had we not cushioned the prices. Other countries were critical of our policy and advised us to slow down, but we remained adamant on continuing this policy. Even if we had slightly given in, we would not have achieved the numbers we have today.”
The government is slowly contracting its expansionary expenditure without shocking the economy while still cushioning energy prices, he said. And it worked so well that he will be in a position to announce tax cuts in the upcoming budget.
Prime Minister Robert Abela recently announced that the 2025 budget will see "the biggest tax cut in the country's history" for Malta’s middle class, but no further details have yet been given about it.
Caruana would not say much when asked about it on Wednesday.
“I invite you to listen to the budget speech, when I will be announcing the tax bracket adjustments,” he told Times of Malta.
‘Malta might have highest employment rate by end of term’
Caruana also boasted of a Maltese economy that is “the strongest in the EU” and employment rates that are among the best.
Malta is the EU state with the second highest rate of employed people and might rise to number one by the end of the legislature, he said.
While economic growth in the Western world was slow, minimal and subdued due to the pandemic and multiple conflicts, Malta’s growth is much more optimistic.
Average economic growth across the EU this year stands at 1%, rising marginally to 1.6% next year, he said. Malta, on the other hand, saw 4.6% growth this year and is expecting a further 4.3% next year.
The EU’s three biggest economies – Italy, France and Germany – are dealing with a growth of less than 1.5%, he noted.
Malta is also above the EU average when it comes to women at work, he said, and increased its participation and retention of male employment as well.
“Within 14 years, we will have gone from being one of the worst countries in employment rates, to the best,” he said, adding that Malta’s unemployment stands at 3.1%, as opposed to the 5.8% in the EU.
He also said inflation has and will continue to calm down next year and will stabilise at around 2% for the next two years.