'Government stimulating recovering economy'

The government was investing in a number of projects and introducing schemes to stimulate an already recovering economy, Finance Minister Tonio Fenech said yesterday when introducing the second reading of a Bill implementing the budgetary measures.

However, Opposition spokesman on finance Charles Mangion said Mr Fenech had failed to announce the new energy tariffs which would wipe out any budget benefits by as much as £78 million. The government, he said, was in a state of denial.

Mr Fenech said economic growth pointers in the third and fourth quarter of 2009 indicated that the economy was showing initial signs of recovery. A number of amendments would be introduced in committee stage to implement measures aimed at addressing the recession and increasing employment.

The government was not happy with the unemployment situation. However, he said that at seven per cent it could be described as acceptable compared to other countries where this registered 18 per cent. The government was investing in a number of projects to stimulate the economy. Other budget measures were aimed at giving support to small- and medium-sized enterprises which employed about 62,000 workers, which was double the amount of workers in the manufacturing industry.

Measures were being taken to address tax evasion, including a new fuel marking system and heavier fines.

Minister Fenech said that in the previous three years, the government had taken measures so that taxpayers benefitted from €145 million a year.

Fiscal departments would be integrated to consolidate enforcement, permit off-setting and check any discrepancies between VAT and Income Tax declarations. Mr Fenech said that there were operators who had updated returns for VAT purposes but had not filed their accounts for income tax purposes for the last five years. Other provisions aimed at looking at value shifting and at avoiding the possibility of bypassing fiscal obligations.

The budget provided for ways on how to finance the deficit which should not exceed €233 million in 2010. Minister Fenech said the government was very cautious in drafting the budget so that Malta would not find itself in irreparable economic difficulties as happened in Greece where the deficit reached the12 per cent mark of the GDP. Ireland, Latvia and other countries had to decrease public employees' salaries by 20 per cent.

Minister Fenech said the proposed anti-abuse measures would be implemented after having consultations with the stakeholders to ensure that a negative impact on business was avoided. These amendments introduced initiatives to attract high-worth individuals to establish themselves in Malta.

Developers would benefit for a further two years from the stamp duty scheme which enabled them to choose between a payment equal to 12 per cent final withholding tax on the sale of the property or the payment of a 35 per cent tax on the profit margin.

Small- and medium-sized enterprises, especially those employing less than 10 persons, could tap into a tax credit scheme in relation to the investments which they would be carrying out during 2010 and 2011.

Such entities in Malta would benefit from 40 per cent tax credit while those in Gozo would benefit from a 60 per cent tax credit. Investment for this purpose would include the employment of new employees, change of machinery and implementation of new technology. To benefit from this scheme enterprises were required to keep good book-keeping and collection of fiscal receipts which may be subject to audit.

Incentives to research will also be provided with income attributable to patents, such as income from royalties, becoming non-taxable. Mr Fenech said that this would encourage opportunities within the research industry and would entice researchers to establish themselves in Malta.

Specific areas of research would also be targeted through financing, including financing of the national strategy on digital gaming to encourage the creation of digital games in Malta.

The best way for Malta to come out of the effects of recession was investment and this year's budget had sought to invest even by increasing funding to various sectors, not least the tourism sector.

For this purpose, tourism has been provided with €5 million specifically to address the effect of the international crisis on the sector, to increase marketing and promotion and to increase airline routes.

Fiscal measures are to be considered together with other measures and initiatives introduced in the budget, including those being implemented through the ETC, which include the Work Trial Scheme and the provision of work coaches.

Challenges in education were also being addressed through financing that would provide not only a better infrastructure but was expected to lead to new schools and better education. Investments in education reforms would reach €270 million.

Concluding, the Minister said Gozo was seen as a principal economic sector and a vote of €25 million was intended to implement the government's plan for the island.

Mr Mangion's speech will be carried tomorrow.