People urged to embrace reform

The government announced a revision of capital gains tax and a wage increase of Lm2.25 in the budget speech yesterday.

Prime Minister Lawrence Gonzi told Parliament the budget for 2006 recognised the strengths the people attained "and secured the vision, strategy and programme of works that build on these strengths so that our country continues to progress".

He called on the people to embrace rather than fear reform.

Dr Gonzi said the government was revising its deficit reduction targets so that the deficit at the end of next year would reach 2.8 per cent of GDP instead of the 2.3 per cent projected in the Convergence Programme presented to the European Union. That will still leave Malta within the Maastricht criteria for euro adoption on January 1, 2008.

As expected, Dr Gonzi announced no new taxes in the budget and said the calculation of the wage increase was a departure from the normal cost of living exercise so as to immediately include the impact of the higher energy prices announced last week. Had the normal mechanism been followed, the wage increase would have been Lm1.75 weekly.

He said Malta's GDP grew by 1.7 per cent in the first nine months of this year from 0.2 per cent last year. Growth for next year is projected at 1.1 per cent.

The deficit will reach Lm76 million, or 3.9 per cent of GDP this year, as targeted, and is projected to reach 2.8 per cent, or Lm55 million next year. That will be Lm5 million more than originally planned in the Convergence Programme, a move which, Dr Gonzi said, reflected current circumstances particularly the impact of oil prices. The deficit is due to be reduced to Lm50 million in 2007 and Lm30 million in 2008.

Government revenue this year will reach Lm913 million, Lm13 million more than projected and Lm100 million more than last year. That included Lm2.4 million more than projected in revenue from income tax and Lm1.4 million more than expected from VAT.

Recurrent expenditure was Lm843.8 million this year compared to the projected Lm839 million.

The government expects to have ordinary revenue of Lm951.5. Recurrent expenditure will climb to Lm857.8 million.

Capital expenditure will increase by almost Lm4 million next year to Lm148.6 million.

The Lm17.4 million growth in government spending next year will be the result of an increased outlay of Lm1.9 million on salaries, Lm8.2 million more on social benefits, Lm2 million on preparations for pandemic flu, Lm2 million for the elderly and Lm4 million more on the capital vote.

Dr Gonzi said that as from today a final withholding tax of 12 per cent will be imposed on the value of property sales instead of the current system where profit on property transfers is taxed at 35 per cent. The sale of own residence will remain tax exempt and there are no changes with regard to property transfers by companies. There will be no tax on forced sales, such as those resulting from separations or court ordered sales by auction.

The government intends to complete the sale of its shares in Maltacom and Bank of Valletta next year and also plans to identify partners for Tug Malta and Kordin Grain Terminal. With regard to Maltapost, the government has decided, in agreement with the minority shareholder, to seek a new partner for the company.

Yacht marinas will be privatised and there are plans for two more yacht marinas, in Xemxija and Marsascala. The import and distribution of energy products, including petrol, diesel and gas, will be liberalised on January 1 and as a result of this process the government will implement the commercialisation of Enemalta's Petroleum Division.

Public-private partnerships will focus on the rehabilitation of Fort Delimara and the redevelopment of Ta' Qali Crafts Village. Development briefs will be issued for the redevelopment of the former computer centre at Swatar, the March 31 installation at Birzebbuga and the site of the Holiday Inn.

A Better Regulation Unit will be set up to review government regulation and cut bureaucracy and there will be a review of work practices at Enemalta and St Luke's Hospital.

Dr Gonzi announced incentives to industry which will include an increase of Lm450,000 in the budget of Malta Enterprise (to Lm2.3 million) for new factory building, soft loans, training grants and better facilities in industrial zones. A total of Lm4 million will be given in tax credits for research and innovation. There will be new tax credits for companies setting up back office operations in Malta, companies setting up e-business in Malta and film makers using Malta's facilities. Film makers will also be eligible to refunds of up to 20 per cent of their spending in Malta apart from tax exemptions.

There will be tax credits to companies that pay for studies by their employees.

The promenades at Mellieha, Ta' Xbiex, Marsaxlokk and Wied Babu (Wied Iz-Zurrieq) will be embellished. The old clocktower at Vittoriosa will be rebuilt and Merchants Street, St John Square and Palace Square in Valletta will be embellished.

The Malta Maritime Authority and the Civil Aviation Department will be merged to form the Malta Ports Authority.

Spending on education will grow to Lm108 million, including Lm5 million on new schools. There will be new secondary schools in Qormi, Cospicua and Naxxar and a new primary school in Pembroke. The university budget will be supplemented by Lm200,000 for the library.

The refund on the purchase of solar panels will rise to 25 per cent to a maximum of Lm100 and the scheme will be extended to roof insulation systems in private residences. The government will refund 20 per cent, or up to Lm500, of spending made on photovoltaic equipment.

Road works will next year focus on the Regional Road, the Hal Far Road and other arterial roads co-financed by the EU. The government will raise its spending on roads in residential areas by Lm2 million to Lm7 million.

Property inherited before November 25, 1992 will remain subject to the current seven per cent final withholding tax. In the case of properties inherited after that date, there would be no tax on the value of the property as declared in the causa mortis but there would be a 12 per cent charge on the difference between the sale value and the declared value at the time of inheritance, meaning that the tax on the profit would fall from 35 per cent to 12 per cent.