FOI's Budget recommendations

In drawing up its recommendations for the national Budget, the FOI Economic and Financial Affairs Working Group, headed by FOI deputy president Anton Borg, held a number of meetings with representatives of leading accountancy firms and the financial controllers of firms represented on the FOI council.

The FOI also conducted a survey among a small sample of its members to collate data on some key issues that appeared to affect industry's competitiveness.

The recommendations were incorporated in a number of charts that formed the subject of a detailed powerpoint presentation made to Finance Minister John Dalli at a formal meeting with the FOI council.

The recommendations were also forwarded to Economic Services Minister Professor Josef Bonnici and to the chairman of the Malta Council for Economic and Social Development, Professor Edward Scicluna.

At a press conference at the FOI offices on Friday, FOI president Joe Zammit Tabona explained: "The FOI recommendations for the 2003 Budget are focused on a few areas where Government action could easily help to reduce industry's costs...

"Manufacturing enterprises are losing competitiveness and Government intervention in this regard will stimulate industrial activity and the economy in general."

Here is a list of the main FOI recommendations:

Labour costs

¤ Find a way to reduce to a more acceptable level the increase in labour costs from year to year to maintain productivity and competitiveness.

¤ COLA should not be automatically granted to everyone but only to employees on minimum wages.

¤ Training grants to be maintained at the maximum of 48 weeks as in previous years.

¤ Government to consider a reduction of the current three-day 'window' to one day prior to issuing NI sickness benefit.

¤ The number of public holidays, increased some years ago, causes additional manufacturing costs: Government should take steps to reduce them.

¤ Incentives for new job creation in manufacturing: State contribution by a cash grant for two years or exemption for companies from payment of Social Security contributions for three years.

¤ A tax exemption for employees on premiums paid by employers for private health/life insurance and private pensions.

Income tax

¤ A reduction in personal income tax rates/bands would generate a certain level of economic activity. However, ideally, tax breaks should be linked with an encouragement for people to save more to ensure that this does not lead to material increases in consumption.

¤ Fringe benefits rules have mainly resulted in additional financial burdens for employers who have had to top up salaries of key employees. Some degree of review of the rules is suggested.

¤ Valuation of cars as prescribed by the Inland Revenue Department is substantially on the high side as are the percentages on private use of company cars included in the rules.

¤ Creation of incentives for share options to employees, e.g. by exempting the discount on acquisition and taxing only capital gains on the transfer of acquired securities by employees, perhaps at reduced rates.

¤ More accountability by the Inland Revenue Department. CIR should issue more statements of practice and guidelines for taxpayers on departmental decisions on self-assessment. CIR should not only be subject to interest but also to penalties (e.g., in case of wrong assessments) similar to taxpayers.

¤ Tax deduction on investments in private pension schemes to employees: up to 100 per cent of the premium paid by the companies.

Incentives for Research and Development activities

¤ Creation of an incentive package specifically tailored to encourage the carrying out of R&D and innovation activities in Malta.

¤ The package can be based on current laws, i.e. the Business Promotion Act and Business Promotion Regulations, which already include enabling provisions for the granting of incentives in this area.

¤ Fiscal incentives: this should involve a review of current incentives to tailor them more for current realities of R&D and innovation; e.g. taking into account specific R&D areas such as capital expenditure, technology transfer, industrial design, process engineering development, implementation of quality certificates and software.

¤ Other incentives: due to the high costs and risks involved in R&D and the level of competition between countries to attract such activities, fiscal incentives are not enough and financial incentives are also required.

¤ Provision for financial incentives (e.g., soft loans and guarantees) already exist in the Business Promotion Act and related regulations but these are generic provisions. A specific package for R&D and innovation with specific parameters for industry's needs in this area should be devised and marketed by the MDC.

¤ Ideally a certain level of funds should be approved in the 2003 Budget with action being taken by the MDC in liaison with industry in order to create a specific R&D assistance package as soon as possible.

¤ R&D and innovation funding is also encouraged at EU level - e.g. Commission publications in 2002, More Research for Europe towards 3% of GDP and Corporation Tax and Innovation: Issues at Stake and Review of European Union Experiences in the Nineties, which recommend a mix of fiscal and financial incentives to encourage R&D and innovation.

¤ Such incentives should assist Government's aim to have a repositioning of Maltese industry in an attempt to attract higher value-added activities.

Local freight and port handling

¤ The manufacturing sector perceives many of the charges it pays for FIOS and those paid to Cargo Handling, like a "grant" for privileged hereditary port workers. Cargo Handling is not seen as an organisation that provides services and adds value to the import/export supplier chain.

¤ Government is requested to start negotiations and find a good compromise that will end this monopoly and restructure the service with a new, cost-effective service.

Environmental incentives

¤ Companies exporting waste for recycling incur an extra freight cost and, considering that Malta benefits from this transfer abroad from an environmental point of view, a contribution on the freight would serve as an incentive on this type of transaction.

Electricity

¤ No increases in electricity rates.

¤ Enemalta to provide compensation for power failure and voltage dips.

¤ Maximum demand meter to be reset on a quarterly instead of the current annual basis.

¤ Night rates incentive to be extended by two hours to apply from 8 p.m. instead of 10 p.m.

VAT refunds

¤ VAT refunds are to be paid on time as per local legislation.

¤ Claims for export-oriented companies need to be reduced from five to two months.