Like every other year, this year’s budget speech by Finance Minister Clyde Caruana focuses on the ‘good’ stuff, the giveaways, the grants and the wins of the past.
While I do not want to take anything away from presenting a budget that is more optimistic than those presented in other countries in Europe, I want to look at some of the key measures and some potentially missed opportunities from a payroll and employment perspective.
The first thing that is on everyone’s mind is the cost-of-living increase of €12.81 and the minimum wage increase of an additional €8 an hour.
Out of these, a fairly significant portion is going back to the government, given that employers have to increase their social security contributions and work-life balance contributions. Based on our early estimated calculations we are seeing some employees receiving less than 60 per cent of the additional money that employers are now paying.
The cost-of living increase will cost an employer at least €14.12, of which €2.60 is paid as social security and work-life balance contributions; with anywhere between €2.12 and €4.94 in income tax. On your average salary, €6.13 weekly goes back to the government, or around €318.76 when you annualise it.
Now what’s important is to state that this is by no means an increase in taxes. This applies to our current tax system and legislation that has applied for decades. With the tax bands remaining unmoved, and the maximum pensionable income increasing, the payments we make have equally moved alongside it.
I will, however, take the opportunity to look back at one of the schemes that this government has introduced ‒ the concept whereby we reward anyone who is hard-working, more specifically, the overtime tax rate. For those who remember, this was announced as applicable to anyone earning less than €20,000.
However, someone who was earning €18,500 in 2022 and was eligible, without any further increase but COLA, has now been moved out of this, given the last two increases amount to €1,180 per year. Here, however, is the anomaly… if someone was indeed maximising out this benefit and, yes, I hear of people who do, this person will now pay €1,000 in extra tax a year. Not only do they lose the whole ‘overtime benefit’ but they actually have a net decrease in salary because their basic salary increase is still taxed and they still pay the extra contributions; including the income tax anomaly, they have effectively lost €503 in take-home pay.
When the government says it has presented a socialist budget it makes me wonder which group of people it is referring to. In reality, there are two groups of people that have had the largest net increase in salaries. The first are those on minimum wage, the second group are those who are above the maximum pensionable income.
The other big change that seems to affect salary computations as of January 2024 is where the current maximum pensionable income cap is being changed for those born before 1962. This will likely mean that social security contributions for those in their last couple of years before retirement will see an increase in their social security contributions by around €10 a week. We will be waiting to see the exact implementation of this measure to confirm that this will be the case.
On the flip side, once they reach retirement age, the non-taxable income from earnings at work will now increase to 60 per cent, in line with the previous measure of having all income not taxable by 2027.
Occupational or private pension contributions may become mandatory in the future- Jonathan Mifsud
In line with pensions, I took particular note when Caruana mentioned the possible sustainability of pensions, with a reference that occupational or private pension contributions may become mandatory in the future. This is something other countries have been doing quite well.
Employers should take note of this and start factoring in an additional three to five per cent contributions, which would likely be enforced as employer contributions based on similar models implemented in the EU. This could mean a new inflationary pressure that needs to be managed, which is why I presume Caruana is making sure the warning is heeded early for a possible introduction later in this legislature.
Another piece of good news for employees is the fact that, in the budget speech, the effort by the Department of Industrial and Employment Relations to normalise Wage Regulation Orders (WROs) has been recognised. I look forward to seeing what modern WROs for today’s workforce will look like.
Pressure on our country’s population is definitely being felt. What employers will surely be feeling, however, is the increase in application fees for new third country nationals (TCN). Alongside the new skills requirement for new hospitality employees starting this January, these two measures are a shift in strategy. Hopefully, this will start to shift our thinking as a country to create sustainable roles, ones where people can grow, settle and live for a number of years.
I hope that this leads to an increase in the average TCN stay in Malta. A large percentage of employees are said to leave the country within three years. While that may be related to a large number of factors, a key one is that they are not able to sustain their lifestyle and settle in the country.
With new employees likely to become more difficult and more expensive to bring over, ensuring they have a positive experience and create even higher value within the country becomes more important.
All in all, this budget may have seen no ‘new’ tax increases but Caruana’s more expansive budget is only possible because of the significant increase in revenue that will be funded by us, the common folk.
In the past, he inferred that the government should be less wasteful with the resources provided. I sincerely hope that his fellow ministers and public officials are consciously aware that their respective budgets are being funded by employees that have been squeezed due to inflationary pressures.
Jonathan Mifsud is the co-founder and CTO of Buddy, a leading Cloud Payroll and HR solution.