Government to amend property sales tax scheme

The government is fine-tuning the measures on property tax announced in the budget to address problems pointed out from several quarters, the Prime Minister announced yesterday.

He told Parliament that the introduction of the final withholding tax on properties had been very well received by those who had inherited property.

Indeed, the purpose of this measure was to encourage these property owners to put their properties on the market so that the increase in supply would dampen prices, which had been rising over the past few years.

In view of the debate raised by certain quarters, the government had now decided that when an engaged couple broke up and they jointly owned a property, the transfer of the share of a property from one of the parties to the other would be exempt from the new system.

When a taxable property was sold within five years of its acquisition, the vendor could opt to either be taxed under the new final withholding tax system, or the former regime at 35 per cent on capital gains. This choice would also be given for the first transfer of developments in special designated areas and would not be bound to the five-year limit.

The transition period to cover acquisitions under promise of sale agreements registered up to November 22 was being extended from December 31 to March 31, giving those involved the choice to pay tax either under the current capital gains system or the new system. In his speech in reply to comments by the leader of the opposition on the budget, Dr Gonzi recalled that last year's budget speech was based on an invitation to the people to renew the country.

The first question which needed to be asked, therefore, was whether this process of renewal had taken place.

The reply was clearly that the government had kept its word and the process of renewal was bearing fruit. The dockyard had been reformed and there was a saving of Lm27 million from that sector alone. There had been successful restructuring at PBS and at Gozo Channel and a new agreement on the development of Fort Chambray. A new, high standard Gozo helicopter service was introduced; the Freeport was privatised and it would see an investment of €40 million and a throughput growth to three million TEUs from the current 1.3 million.

The government had also sold half its shares in MIA for a record price which exceeded expectations.

New investment had been attracted to Malta, particularly in the pharmaceutical sector; 17km of road had been built in 17 months for Lm17 million; schemes were introduced to help SMEs; to settle outstanding VAT payments; to facilitate the registration of foreign assets and to help the unemployed, particularly those aged over 40.

A new six-year collective agreement for the civil service was concluded, a fresh deal with Skanska was reached and the opening date of the new hospital was fixed at July 2007; the upgrading of St Vincent de Paul Home was continued and first steps were taken for the building of a home for the elderly at Mellieha. The stipends system was improved according to national needs; special assistance was given to Gozitan students, new schools were built and a wide ranging reform process in the education system was launched. The government started the process to rehabilitate Maghtab, modernise the waste recycling plant and introduce the green wardens.

Among the major targets achieved this year was that the government had managed to cut back its spending.

As a result of accession, Malta received Lm22 million in net grants from the EU plus Lm7 million in pre-accession funds, Lm9.5 million in structural funds, Lm1 million from cohesion funds and Lm4.5 million in a transitional facility, a total Lm44 million which was very different from the Lm1.5 million which Labour used to say Malta would get. And next year there would be more.

And despite all these achievements, Dr Sant on Monday said the government lacked commitment, it was arrogant and incompetent.

And over the past months what Labour had done was try to trip the government in everything it did.

The opposition also shirked its duty by not giving its contribution after the pre-budget document was issued and it never reacted to the White Paper on pensions reform. Pension reform was a major issue not just for Malta but for most developed countries. It was an issue with implications well into the future and it should not be a partisan issue. But the opposition was afraid of taking responsibility for tough decisions and aimed only at winning elections.

The current position was that workers receiving a salary of Lm6,000 and over could only receive a pension of Lm4,500. One could easily see what the situation would be in the future as salaries continued to rise if pensions remaining capped at Lm4,500. But this was what Labour was effectively saying through its inaction.

Dr Gonzi said he was surprised to have heard Dr Sant on Xarabank say that a Labour government would be prepared to go around or bend EU rules. Yet Dr Sant's speech on Monday, the attitude of the opposition over the past few months, and its inaction on crucial matters were evidence of such twisting around.

Indeed, on Monday Dr Sant twisted facts and figures as it suited him.

Dr Gonzi said that although the government had made significant progress over the past year, it was far from being complacent because much remained to be done. Among them were the pensions reform and the reform at the ports in order to cut costs and raise export competitiveness. Bureaucracy also needed to be cut down in order to lighten the compliance burden on SMEs.

The second question which needed to be asked, Dr Gonzi said, was whether the people were better off. The reply, he said, could be divided into two.

First, was the country better off? And then, were the people better off?

The fact that the country had reduced its deficit for a second straight year and was achieving its financial targets meant it was moving forward and was better off than before. Unemployment had in 1997, under Labour, increased by 1,152 whereas in the first nine months of this year, it fell by 1,045.

Gainful employment, including full and part time jobs, was 161,000 this year, an increase of 3,643 over last year.

Full time jobs this year climbed by 585 up to September while the number of part-time jobs grew by 3,060. This was evidence of economic growth.

Further evidence of economic growth was the fact the government revenue grew by Lm27 million from VAT and Lm14 million from income tax.

Social expenditure on items such as pensions, health and education this year reached Lm463 million and would climb to Lm475 million next year.

The deficit had been brought down impressively to reach Lm76 million this year as projected. Next year the deficit would reach Lm56 million, dropping below three per cent of GDP for the first time in many years.

Investment this year grew by seven per cent over last year; foreign reserves grew by seven per cent to Lm1,600 million; inflation was the eighth lowest in the EU 25 while GDP growth in the second quarter was 2.3 per cent, the fifth highest in the EU.

The budget for next year included no new taxes because the government was confident it would again meet its targets, unless unforeseen circumstances developed.

For next year, the government was projecting expenditure of just over Lm1 billion, which was Lm82 million more than this year, with about half the spending going on social benefits, health and education, something which the government was proud of.

Of particular significance was that the government would have a surplus of Lm94 million in ordinary revenue over recurrent expenditure next year, up from Lm69 million this year. This meant that borrowing which was being made was being directed to investment on capital projects for a better quality of life.

Dr Gonzi insisted that he was not saying that everything was rosy. More needed to be done to attract more tourists and improve the tourism product. Challenges needed to be overcome in manufacturing industry. There needed to be higher value added in exports, more job creation, a faster rhythm of economic activity, greater foreign investment, and a cleaner environment. Malta also faced the challenge of the oil price hike.

But were the people better off?

His honest answer, Dr Gonzi said, was that the people were now better off than at the time of the Sant government. They would not have elected the PN to government twice over had that not been the case.

Still, there were people who had had to make sacrifices over the past months, such as those who suffered because of the higher energy and fuel prices and the higher departure tax. But the country had needed to strengthen its finances. That sacrifice had resulted in progress and a budget which included no new taxes. Indeed the government was now considering ways how to reduce the tax burden.

It was for this reason that the theme of the budget this year was "Building on our strengths."

Dr Gonzi complained that the arguments moved by the opposition were not based on alternatives but they were an attempt to undermine the credibility of the country and its results.

One could not ignore the challenges of the oil price hike, globalisation and greater competition from China and nearby countries such as Tunisia. These were hurting the country, as the dismissals from Denim Services showed. And what was worst was that Dr Sant was trying to exploit the situation for political gain. He was implying that the dismissals from this factory were due to EU membership. Yet, had Malta not joined the EU, this firm would have faced higher duties on its exports to Europe and faced its problems two years ago.

What interested the unemployed, however, was what was being done to place them in new jobs. The government was committing all its resources to help these workers find new jobs, and Parliamentary Secretary Tonio Fenech had had talks with the banks in an effort to achieve some relief for those who had bank loans.

Dr Gonzi said he had never met anyone like Dr Sant who believed official Maltese and EU figures which put the government in a bad light, but not those figures which showed it up favourably. This twisting around eroded his own credibility.

For example, on Monday Dr Sant said Malta was at the bottom of the Lisbon Strategy scoreboards drawn up by the EU. But then he did not believe what the EU said about Malta having reached its deficit reduction targets.

Dr Sant believed figures showing a drop in the value of Maltese exports, but then he did not believe GDP growth figures, both issued by the NSO.

He believed the Labour Force Survey showing unemployment of 7.5 per cent rather than ETC figures showing a jobless rate of five per cent. Yet the LFS included people aged 15 and over 61, when people of that age did not work in Malta.

On the deficit, Dr Sant was continuing to argue that deficit reduction was being sought only because of EU demands. Yet reducing the deficit, and hence, the debt servicing bill, would mean freeing more money for the projects which the people needed.

It was worth recalling that seven years ago the Labour government had projected a 1997 deficit of Lm82.6 million but the actual result was a deficit of Lm129 million, a mistake of Lm47 million, and this without any steep increase in the oil price! And 1998 ended with a deficit of Lm153 million. The deficit rose by Lm13 million for every month of Labour government. In contrast over the past 20 months alone, the deficit was reduced from Lm105 million to Lm76 million now.

It was also worth remembering that the fruit of Labour policies came accompanied by the introduction of the sewerage tax, higher power prices, higher vehicle registration tax, a departure tax, stamp duties on insurance, a windfall tax on banks, a levy on credit cards, higher cigarette and spirit prices and a revision of students' stipends, among others.

Dr Gonzi insisted that the projected growth in tax revenue next year did not mean higher taxes, as Dr Sant had claimed. This was yet another example of twisting the truth by Dr Sant. This government was not raising income tax, but revenue was increasing because the people were earning more. Thus, while income tax was also not changed last year, revenue from this source rose by Lm11 million. Economic growth next year would again yield higher revenue.

Dr Sant had gone so far as to say that the government would collect Lm2.7 million more from the residents in old people's homes next year. Yet this was no increase at all. There had only been a change in the headings of the government accounts. All Dr Sant had needed to do was turn just seven pages of the Financial Estimates. The honourable thing for Dr Sant now was to admit his mistake.

Touching on other points raised by Dr Sant, Dr Gonzi said there was greater control on costs on the new Mgarr Harbour project and the new structure had been re-designed in a way which was more pleasing and which would give the island the facilities it deserved.

As for changes in the building of Mater Dei Hospital, he was tabling a development application filed by the Labour government showing an extension of two storeys and the building of a new wing. The present government had had no choice but to follow those decisions.

Dr Sant had also been critical of the investment made in the Brindisi harbour project, but, Dr Gonzi said, he was tabling the contract for this investment signed on August 7, 1998 by John Attard Montalto, then the Labour government Minister for Economic Affairs and Industry. And on March 8, 1999, Dr Attard Montalto, as reported in The Times, congratulated the freeport for following up this project "started by the former Labour government."

Dr Gonzi observed that the opposition was harshly criticising the government for its spending on entertainment, transport, consultants and travel. Yet this year the government had spent Lm7.4 million on these areas whereas Labour spent Lm7.5 million. And no adjustment was being made for inflation.

But in criticising the spending on transport, was Labour saying that it would charge parents for school transport, or would it charge patients for being transported to hospital?

Dr Sant had also criticised waiting lists for operations, yet the World Health Organisations placed the Maltese health service in the worldwide top five. Indeed, over 10 years, spending on medicines had risen from Lm6 million to almost Lm20 million.

When he spoke on education, Dr Sant claimed his government had modernised 160 schools. But the government only had 136 schools at the time. Where had the 24 phantom schools gone? The present government had the best record on education, for which it allocated 14 per cent of the budget. Progress could be seen not just in the building and modernisation of schools, but also in the higher pass rate in Junior Lyceum exams. And while the number of 17-year-olds who had furthered their education totalled only 43 per cent in 1999, that had now climbed to 66 per cent. The percentage of 19-year-olds in education had risen from 31 per cent to 44 per cent. The number of university graduands had risen from a mere 267 in 1987 to 2,700 in last year.

Dr Gonzi said he agreed with the comments by Dr Sant on illegal immigration. The pity was that he had not made those same comments when he spoke immediately after the speech by the president of the GWU, Salvu Sammut last month.

Dr Gonzi referred to a document tabled by Dr Sant on Monday regarding the workings which led to the raising of the surcharge on water and electricity. He said Enemalta and the Investments Ministry had produced their own document replying to all the points made by Labour's anonymous experts and confirmed the government workings.

It was clear, Dr Gonzi said, that current tariffs, with the 55 per cent surcharge included, were still lower than the tariffs fixed by the Sant government. The comparison could only be made with the tariffs announced by then Finance Minister Leo Brincat and the bills the people had received. Although Dr Sant claimed that those prices were revised, on the eve of the 1998 election, no new regulations or revised bills were issued.

On the economic situation, Dr Sant had sought to make comparisons with Cyprus. Yet he had quoted figures issued by a Cypriot bank, not Eurostat. In the second quarter of this year, Maltese growth was 2.3 per cent while that of Cyprus was 0.7 per cent. Inflation was 2.2 per cent here and 2.3 in Cyprus.

Cyprus had a better unemployment rate at 6.4 per cent compared to 7.6 according to the Labour Force Survey in Malta. But the difference was not as wide as Dr Sant made it out to be.

Dr Sant had also outlined his plan, saying there should be a partnership with the private sector. Yet that was what the government was doing, and the MLP was objecting, such as in the case of Sea Malta.

Dr Sant said Labour would introduce measures to help industry. That was what the budget did.

Dr Gonzi said that although there was much more to be done - such as improving tourism and the environment and helping manufacturing industry and SMEs, the hand on the rudder was firm. The people should be proud of their country and of what they were achieving. There was nothing which should discourage them. Which was why the theme of this budget was "building on our strengths."