The government yesterday pulled the proverbial rabbit out of its hat with a surprise upward modification of the income tax bands that targets the middle class.

With the 35 per cent tax thresholds pushed up by Lm1,400 for a single computation and Lm2,000 for joint computations, people in these income brackets can expect to save up to Lm230 for a single computation and Lm341 for a joint computation.

The measure will cost an estimated Lm12 million, which means that, together with last year's changes, the government would have forgone some Lm24 million in income tax in two years.

Parliamentary Secretary Tonio Fenech had dismissed the possibility of the tax bands being adjusted again following last year's shifts when the pre-budget document was launched last July.

While the government's decision to increase the income tax thresholds last year had positive results overall, he had said the measure failed to give that extra helping hand to families with children, particularly those with more than one child.

The implication was that the government was more inclined to invest in children's allowance increases, which it did anyway.

When asked about the apparent change of heart during a briefing given to journalists yesterday, Mr Fenech said he had not dismissed the possibility but simply kept the measure secret as a surprise.

"We cannot tell you everything there will be in the budget," he said half seriously, adding that the measure actually follows on last year's budget speech.

"Then I had promised people that if the economy grew and we reached our financial objectives," the Prime Minister said in his speech yesterday in reference to the 2007 budget, "the government would continue with this important reform."

Sources close to the constituted bodies, however, said the measure was not really on the cards when the Malta Council for Economic and Social Development met the government on Friday.

The change of heart is likely to have come after the unions, during that meeting, advised that a measure the government planned for taxation of part-time employment would have disrupted a number of collective agreements signed with private companies.

The government redirected the money it was going to use for that measure to a revision of the tax bands, sources said.

The Chamber for Small and Medium Enterprises (the GRTU) in particular urged the government to raise all thresholds by over Lm2,000.

In a press conference it gave yesterday, the GRTU welcomed the step but said it was not bold enough, emphasising that the cuts would have boosted economic growth.