Finance Minister Clyde Caruana on Monday ruled out tax cuts sought by some business associations to cushion the inflation blow. 

The minister pointed to the €350 million subsidy given by the government on power and fuel, and also noted new EU budgetary rules which require member states to reduce their deficit to 1.5% of GDP.

Speaking in parliament during the opening of the debate on a bill to implement budget measures, he noted that the Association of Catering Establishments had called for a reduction of VAT. So too had the Chamber of SMEs (formerly the GRTU) which called for VAT to be lowered to 15% to address inflation, which reported that businesses were facing increased costs and recruitment problems.

Caruana said he had nothing against business and their growth. Had that been the case, the government would not be giving the generous subsidies on electricity and fuel that no other government was giving.

But such associations needed to think deeply about the drop in profitability their members said they were suffering.  

Malta was a small country with a small market that was being affected by diminishing margin returns as competition in some sectors, such as catering establishments, continued to grow, he said.  

Giving in to concessions these associations were seeking would only serve to invite more operators to enter the market and they would soon return asking for more.

It was a vicious circle because people were looking inward not outward, the minister said. It was time for Malta’s leading entrepreneurs to rise to the occasion and pull the business community to look outwards.

The associations, he noted, had also complained of problems in recruiting workers and engaging foreign labour. Foreign workers were important for the economy, and some sectors would suffer without them, Caruana said. 

If businesses continued to expand inwards in labour-intensive activities, they would need even more workers, who would, in turn, need places to stay and a proper infrastructure, which the government had to provide.  And as demand for such workers grew, so would costs.

It was, therefore, not a solution to turn to the government, asking it for concessions that would reduce its income. The government could not afford to reduce its income while needing to grow the infrastructure and related services.

Caruana urged businesses to look beyond Malta’s shores and to seek growth while requiring fewer workers.

The minister insisted he was not against business growth and recognised the problems some business sectors were facing, but the solution was not for the government to reduce VAT or import duties. 

The government, he said, remained committed not to raise taxes but could not reduce them, except personal income tax, which was an electoral commitment. 

Minister's warning on the EU

Caruana also urged the country to watch and debate developments in the European Union, particularly the implications for Malta of eastward expansion. 

The EU, he said, was starting to move on the road which would replace the current decision-making process with one based on a qualified majority, with population size being a factor.

This, he warned, would lead to a situation, mentioned by Alfred Sant before the EU referendum, where Malta would lose its voice and its sovereignty.

Caruana stressed he was not advocating taking Malta out of the EU. But it needed to be wary of how a change of those rules would affect it in the future.