The government will collect around €25 million in extra taxes next year, as workers and employers pay additional income tax and national insurance on the weekly €9.90 in cost of living adjustment (COLA).
During his budget speech last week, Finance Minister Clyde Caruana announced a record raise in the national allowance for next year. Amid high inflation, he said all employers must add €9.90 per week to every worker’s salary.
This means employers in private businesses must fork out an additional €514.80 annually to each employee, a figure on which both employers and employees will need to pay additional national insurance and income tax.
Governments have always collected taxes on COLA, but in the past the allowance had almost always hovered around €2 per week. With next year’s €9.90 per week, the discrepancy in extra tax revenue is significant.
The government will still need to fork out millions of euros to cover COLA to its own workers, pensioners and students, but it is still expected to net €25 million in extra taxes.
The finance minister said that had it not been for the government’s intervention to cushion energy prices, COLA would have shot up to €25, which would have potentially crippled some businesses.
Jonathan Mifsud, co-founder and Chief Technology Officer of a payroll company, calculated that of the €9.90, the average worker will take home around €6.43.
Mifsud worked out how much the new COLA will cost the average worker and employer in the private sector, according to the most recent national statistics.
Latest National Statistics Office (NSO) figures show that last May, there were 199,493 full-time workers employed with private businesses and 51,119 workers in the public sector.
NSO figures also show that the average salary in Malta right now stands at €1,730 per month.
A COLA of €9.90 means employers will add €514.80 annually to each of their workers’ salary.
Out of that amount, over the course of the year, employees must pay €51.48 in social security contributions and €129 in income tax. Over and above that, the employer must pay their share of the social security contributions – that is another €51.48 – and a small contribution to a maternity trust fund.
This means that by the end of next year, the employee will have taken home a total of €334 in COLA with the government taking the rest. Multiply that by almost 200,000 private sector employees and the government will have cashed in €46.58 million by the end of next year.
These are conservative estimates because the current trends indicate the number of workers in the private sector will likely increase next year, and so will their salaries.
Workers will pay less tax because they earn less
On the other hand, some workers will pay less tax because they earn less, but others will pay more because they fall within higher tax brackets.
Some will also get an additional, pro-rata COLA for a part-time job they do on the side, and they pay tax on that too.
Furthermore, the government has its own cost of living adjustment expenses. It must add COLA to the salaries of its own 50,000 public service workers, to the pensions of the elderly and to students’ stipends.
The budget also promised all public service workers a €3.50 raise, and as salaries increase, so will the expected government revenue from income tax.