VAT hike compensation being studied

The government is considering giving employees a one-off payment, equivalent to between 75 cents and Lm1 per week over the course of a year, in order to compensate for the effects of the three percentage point rise in VAT expected to be announced in Monday's budget.

According to sources, the payment would be made in March.

The Federation of Industry has called for costs to industry to be slashed to make up for the increase in VAT, rather than subsidies.

The sources said there would be no increase in taxes on tourism so as to keep Malta competitive. The original proposal was for VAT on accommodation to rise from five to eight per cent. But following a detailed presentation by the Malta Hotels and Restaurants Association at the last meeting of the Malta Council for Economic and Social Development, in Gozo, the government has decided not to raise the tax.

However, the tourist industry would still be hit by the general increase in VAT, the sources held.

The sources also said the government was determined to tackle the pensions issue by June and reference to this would be made in the budget.

Speaking at the Nationalist Party's general council last Sunday, Prime Minister Eddie Fenech Adami made it clear that VAT was set to rise. He also spoke about the welfare system reform, stressing the need for people "to show solidarity".