The government will not take on the developers' lobby budget suggestion to harmonise corporate tax at 15 per cent, Clyde Caruana said on Wednesday.

There are ongoing discussions with the EU Commission about the minimum level of taxation in the bloc and until they come to a close it is not wise to shock the economy in such a substantial way, the Finance Minister told Times of Malta shortly after he launched the pre-budget consultation.

"I must see that we do not shock the government's revenue and any reform must be implemented in phases, and not at once," he said.

"We must first make sure the government collects all taxes that it is due, then we would be able to start discussions on the possibility of reducing the 35% corporate tax rate."

It is in the country's interest, however, that the rates remain the same for now, he added.

His comments suggest the government also does not plan to lower corporate tax for local companies to 25%, which is a Labour Party electoral pledge for this legislature. 

Caruna was reacting to one of the Malta Developers' Association pre-budget proposals.

Among a raft of suggestions presented to the government last week, the lobby said Malta’s minimum wage should rise to at least €1,100 a month while corporate tax rates should be harmonised to remove disparities between foreign and local firms.

The MDA would like to see tax rates for foreign businesses gradually raised from their current effective 5% rate, while tax rates for local entrepreneurs are slowly slashed from their 35% rate.

This would effectively overhaul Malta’s corporate tax structure to result in a flat 15% rate for all businesses.

But Caruana said that as long as there are discussions about tax harmonisation at EU level, now was not the time to rock that boat locally.

He was referring to Pillar 2 of the EU's minimum level of taxation.

It is a global rule that aims to ensure that multinational corporations pay a minimum effective tax rate of 15% on their profits. This is designed to prevent companies from shifting profits to low-tax jurisdictions to avoid paying taxes.

Pillar 2 aims to create a more equitable global tax system by ensuring that multinational corporations pay their fair share of taxes, regardless of where they are located.

'Tax cuts will not cause inflation'

Caruana also dismissed concerns raised by the employers' association over the government's plan to help the middle class in the upcoming budget through tax cuts.

Although very few details have been announced yet, the government has promised to adjust tax brackets to effectively slash taxes for the middle class in the upcoming budget.

But the MEA said last week it believes 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.

It said the measure could fuel inflation and the potential positive economic effects of a tax cut could quickly be eroded by a rise in prices.

But Caruana said he is not worried about that.

It will not fuel inflation as the budget will make sure Malta continues to gradually contract its deficit, which means the government’s fiscal policy will become less expansionary, he explained.

That is why the government will still be in a position to reduce taxes on personal income without the measure driving up inflation, he added.