Any income tax cut should be carefully considered as lower taxes could mean higher inflation, the Malta Employers Association said on Tuesday.
“A tax cut will alleviate the pressures of wage increases and can incentivise higher tax compliance, but it must be treated with caution,” MEA director general Kevin Borg said.
The positive economic effects of a tax cut could quickly be eroded by a rise in prices, Borg said.
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.
The MEA, however, thinks this is not the right time to meddle with the government's income tax revenue, given that Malta is under enhanced EU scrutiny over its overly large budget deficits.
“Under current circumstances with an excessive deficit procedure, it would be unwise to revise tax bands and increase the deficit,” the MEA said in a document featuring its proposals for Budget 2025, which will be unveiled next month.
Lower taxes will also mean less revenue for the government, Borg said on Tuesday, adding that the government needs money to take on important capital projects.
That includes investments in Malta’s energy supply and distribution systems, water supply, and drainage systems, he said.
The government should also invest in a multi-modal transport system and artificial intelligence technology to help alleviate traffic, he said.
More value-added industry
Malta should also refocus its economy towards “more productive, higher value-added and sustainable activities,” the MEA’s budget document says.
The economy is overly dependent on construction, which is affecting the environment, people’s well-being, and Malta’s attractiveness for tourists, they said. Talented Maltese, as well as foreigners, are also leaving because of this, the MEA said.
The Maltese economy should instead focus on “higher value-added manufacturing and services that will create jobs without compromising the natural environment.”
“We need a gradual but immediate altering of Malta’s economic course that considers the country’s carrying capacity,” Borg said, adding that “Malta’s future economic prosperity needs to align with its physical limits.”
Both Abela and his finance minister, Clyde Caruana, have acknowledged the need to shift the focus towards higher-value, less people-intensive economic sectors.
The MEA was also asked about an upcoming policy that will review Malta’s economic migration to better align with the needs of the labour market.
Times of Malta exclusively revealed plans to reform that policy in an interview with Home Affairs Minister Byron Camilleri earlier this month.
“There needs to be a rationalisation of the labour force, and while Malta needs foreign workers, local human resources should be used as much as possible,” Joseph Farrugia, who recently resigned as the MEA’s director general but stayed on as a consultant, said.
Digitalisation and Artificial Intelligence should be used to improve efficiency and decrease the need for so many workers, he added.
Tourism, shipping, and agriculture
Malta’s tourism industry is also in “dire need” of strategic direction, the MEA said, as a lack of long-term planning had meant a “general deterioration of Malta’s attractiveness as a tourist destination.”
Employers also want catering establishments - cafes and restaurants - to be granted a lower VAT rate, something the sector has been requesting for years.
On the maritime industry, the MEA wants the sector to be controlled by an authority that is separate from Transport Malta.
“Further expansion of the Maltese maritime industry is dependent on the support of a focused and dedicated entity with more efficient internal structures and a motivated workforce, which is adequately paid and trained to take timely decisions within a complex environment,” they said.
More resources should be given to Maltese agriculture to improve Malta’s food security and combat the loss of agricultural land to construction, they said.