MEA proposes tax credits instead of cost-of-living allowance

The Malta Employers' Association has proposed that those whose income is above the taxable ceiling should be given tax credits instead of the cost-of-living allowance in order to contain wage inflation.

Making its proposals for the budget, the association also urged the government to step up its efforts to curtail abuse of social benefits.

The association said it was recommending that action be taken to address specific issues related to the state of the economy in a way that would create employment and continue to curtail the fiscal deficit.

It said the tax credits would result in an increase in disposable income for employees, and savings in costs to employers, since nominal wage increases would have been contained and real wages would have increased.

Another effect of such a measure would be no increases in costs of overtime and social security.

On social benefit abuse, the association said that in spite of various efforts the abuse was still rampant and was exerting unfair pressure on the government's finances.

Giving an example, the MEA said it was involved in the launch and management of a scheme that offers a full wage, training and possible work placement to those over 40 registering for work.

But in spite of this substantial incentive, only a fraction of those eligible for the scheme (100 out of a potential 1,200 applicants) had applied.

The MEA said it was concerned about the "gross overstaffing" of public corporations. Overstaffing was one of the reasons why utility rates were high, causing increased costs of production in the private sector, negatively affecting competitiveness and, in turn, disincentivising the creation of employment in the private sector.

The MEA proposed an exercise to determine the extent to which these corporations are overstaffed, to classify the underutilised employees and to calculate the cost of the service if these corporations were operating efficiently.

The constituted bodies (MEA, Malta Chamber of Commerce, Malta Federation of Industry, Malta Hotels and Restaurants Association and the General Retailers and Traders Union) had proposed a set of countermeasures to offset the potential increases in labour costs arising from provisions in the Bill, as well as from costs to be incurred as a result of implementing occupational health and safety regulations and environmental legislation.

"While MEA recognises the need for these measures, it must emphasise that any such measures, however commendable, have to be introduced without eating into competitiveness."

The countermeasures proposed by the constituted bodies consisted of reducing freight charges and port handling costs, reducing utility rates for industry and fiscal incentives.

The association said that the government's efforts to reduce the fiscal deficit were commendable and were clearly reaping results. However, the current state of the economy called for a more expansionary fiscal policy, whereby any further reductions in the deficit would come about from increased tax revenue resulting from increased economic growth.

This year had been characterised by a drop in both consumer spending and foreign direct investment. GDP in real terms had dropped for three consecutive quarters.

The MEA said it accepted that this was partly due to the international economic situation, but added that "an expansionary fiscal policy should provide the necessary boost to stimulate economic growth, which in itself increases tax revenues".

MEA recommended that the financial aid being granted in view of the removal of levies should be extended in 2003 to minimise the impact on domestic companies, in particular the SMEs.

The budget also needed to address long-term issues such as the pension reform. The MEA proposed the Irish model whereby a percentage of GNP (one per cent) is allocated to a pension fund maturing in future, when the demographic situation vis-à-vis the pensioners to total population ratio would be at its worst.

The budget should also introduce tax credits for those opting to enter private pension schemes, to encourage people to buy these schemes, the association proposed.

Participation in such schemes should not be at the expense of forfeiting any retirement pension.

Another initiative to improve the sustainability of the social welfare system was to introduce measures that encourage more females to join the labour force.