In view of the forthcoming budget, I wish to put forward some suggestions that may help to improve the quality of life of people and stimulate entrepreneurship.
During recent years, salaries earned by employees, or the net income earned by self-employed people have received a tremendous blow. The sharp increase in the cost of property and rentals, together with the stiff increase in the cost of basic daily needs, has had its toll on people’s disposable income. In order to counter this decrease in disposable income we need an adequate increase in the minimum wage and also a substantial decrease in income tax.
Malta’s monthly minimum wage stands at just €792 per month and it compares poorly to minimum wages in other EU member States. Our minimum wage is higher than that of the ex-Communist countries that joined the EU together with Malta in 2004. All the other countries, including Slovenia and Portugal, have a higher minimum wage than us. The cost of living in these countries is substantially lower than ours.
Can anyone imagine how someone who earns a gross wage of €792 per month, or, rather, a net wage of €713, after deducting national insurance contributions, can survive? For this reason, the minimum wage must be increased substantially to at least € 1,000 per month. This could be done over a period of two or three years.
The maximum rates of national insurance contributions are paid when one earns just €26,831.
In the case of a self-employed individual with a net profit of €26,831, the national insurance contributions paid are €4,025 per annum, or, rather, 15 per cent of the income.
The tax payable is €3,983, or 14.85 per cent. Thus, €8,008 of one’s net profit, that is, 29.85 per cent, are paid on just tax and national insurance contributions.
In the case of an employed individual, the burden is slightly less since the cost of the national insurance contributions is shared with the employer.
In my opinion, it is not right that the highest rate of national insurance contributions is reached once you earn just €26.831. Moreover, the income tax paid on this income is also too high.
Increasing the minimum wage is not the only solution. In order to leave more disposable income in people’s pocket we need to decrease the income tax charged.
I propose that the untaxed income increases as follows:
Single rates: Presently, the first €9,100 is not taxed. I suggest that the first €14,500 should not be taxed. Tax saving: €810.
Married rates: Presently, the first €12,700 is not taxed. I suggest that the first €21,200 should not be taxed. Tax saving: €1,275.
Parent rates: Presently, the first €10,500 is not taxed. I suggest that the first €15,800 will not be taxed. Tax saving: €795.
In order for this decrease in income tax not to shock the economy, the decrease could be done over a period of two years.
Is it fair that someone who earns €26,831 pays as much in NI contributions as someone who earns €50,000 or even €100,000?- Noel Muscat
National insurance contributions finance our free healthcare services and pensions. Nobody doubts the need to pay such contributions. However, there is no doubt whatsoever that the current national insurance rates need some tweaking. As things stand, the highest rate of NI contributions are reached on a relatively low income.
Once an individual has an income/net profit of just €26,831, the highest NI contribution is due to be paid. In the case of a self-employed person, this is €77.40 per week, or €4,025 per annum (15 per cent of the income).
In the case of an employed person, the NI is shared with the employer, thus they each pay €51.60 per week or €2,683 each per annum, a total payment of €5,366, or 20 per cent of the wage.
Is it fair that someone who has an income of €26,831 per annum pays as much in NI contributions as someone who earns €50,000 or even €100,000?
One may argue that a person who earns €26,831 would have the highest pension, which would be equivalent to the pension of someone who earns €50,000 or even €100,000. True as this may be, I am of the opinion that the NI cost is too high, particularly in the case of self-employed people.
Surely, a formula needs to be devised to widen the income bracket over which the higher NI contributions are to be paid.
As things stand, self-employed individuals are not allowed to enter the annual amount of national insurance contributions paid as an expense, that is, they are not allowed to enter the NI contributions paid as a cost in their profit and loss account.
In order to decrease the burden of the national insurance contributions paid by a self-employed person, I suggest that self-employed individuals be allowed to enter the annual national insurance contributions paid as a cost in their profit and loss account.
Noel MuscatThe State is duty bound to stimulate and to push the economy in the right direction and to encourage people to be entrepreneurial.
I believe the abovementioned measures will help to encourage people to aim for and reach higher targets. The State will automatically benefit from this.
Noel Muscat, an accountant by profession, is the mayor of Swieqi.