Response to fuel price rises after Tuesday's Cabinet meeting

The government has effectively ruled out any windfall taxes or the postponement of its capital payments as Malta prepares to dig deep in its pockets to compensate for the rise in oil prices. Government Investments Minister Austin Gatt yesterday however did not let the cat out of the bag as to what the Cabinet plans to impose during the all-important meeting on Tuesday.

Enemalta Corporation has been left with a Lm50 million hole as international oil prices hit $70 a barrel.

Making up for the hike through electricity bills would mean that the government would have to raise the surcharge introduced last year from 17 to 102 per cent. Other possibilities are putting the price of fuel at the pump up by 20c per litre or the government shouldering some of the burden itself by raising taxes or borrowing more.

Dr Gatt told reporters yesterday that the Government was determined to work out a system whereby the burden of the oil price hikes was shared fairly across different sectors.

Alternattiva Demokratika has called on the government to delay the opening date of the Mater Dei Hospital by two years in a bid to cushion part of the Lm50 million bill.

But Dr Gatt explained that postponing capital expenditure was not an option when the problem was ultimately one of recurrent expenditure. Capital financing also generated an economic spin-off.

"On the other hand what we are looking at is the way Government can finance the burden via a loan through short-term financing while hoping that oil prices will go down one day," he said.

Asked by The Sunday Times whether the government was prepared to take the cue from a suggestion made by AD to impose a one-time extraordinary increase in income tax on commercial banks and other financial institutions, Dr Gatt said that windfall taxes would not make sense economically since they would generate revenue for just one year.

"What is going to be a recurrent problem cannot be financed through one-off measures. We have to produce long-term solutions," Dr Gatt said.

Though the minister did not rule out an increase in VAT, sources said this was out of the question.

The minister said the decision would probably be announced right after Tuesday's Cabinet meeting and the measures would come into effect within days.

Dr Gatt expressed his disappointment at the Malta Council for Economic and Social Development, which failed to hammer out a common solution, saying that social partners had to stop looking just at their sectoral interests.

The General Workers Union suggested that no surcharge should be imposed on workers, while the Chamber of Small and Medium Enterprises (GRTU) washed its hands of the matter, Dr Gatt charged.

The Federation of Industry, the Chamber of Commerce and the Malta Hotels and Restaurants Association suggested a spread of the burden but insisted on the need to protect hotels.

The Union Haddiema Maghqudin and the Confederation of Malta Trade Unions also suggested that the burden be spread across the board but underlined the need to ease the weight off workers "indirectly telling us" to hike the tariffs onto industry.

"The government is prepared to shoulder some of the burden but we all have to bite the bullet, like all other countries," Dr Gatt said.