Gonzi Leaves Tax Rates On Hold In Maltese Budget

by Robert Lee, Tax-News.com, London

02 November 2005

Taxpayers and companies are likely to be pleased and disappointed in equal measure after Maltese Prime Minister and Minister of Finance Dr Lawrence Gonzi announced a budget which left most tax rates on hold for another year.

In a fairly nondescript budget on the tax front, the only measure announced by Dr Gonzi of any significance was a reduction of the tax on the profit from the sale of inherited property from 35% to 12%.

Other notable moves included a Lm2.25 ($6.30) per week increase in minimum wages to take into account the rising cost of living brought about by increasing energy and fuel prices; more incentives for the use of alternative sources of energy; and an announcement that more publicly-owned entities are to be privatised.

On the fiscal front, Dr Gonzi announced that public deficit in 2005 is estimated at Lm76 million or 3.9% of the GDP, down from Lm94 million in 2004. The deficit is forecast to decline again next year, to Lm55 million, or 2.8% of the GDP, which is below the 3% threshold for countries that have adopted, or, like Malta, are hoping to adopt, the single European currency. According to Dr Gonzi, Malta will be ready to join the single currency on January 1, 2008.

The Government's revenues increased by Lm100 million in 2005 when compared to 2004. Revenue from VAT increased by Lm27 million, Lm1.4 million above the forecast figure. Income tax increased by Lm13.4 million on the previous year, Lm2.4 million more than predicted.

Meanwhile, government expenditure rose by Lm82 million in 2005 compared to 2004 with pensions and social security accounting for the largest portion of this increase.

However, as Malta's fiscal outlook continues to improve, growth in the overall economy will be slow. GDP is set to increase by just 1.1% in 2006, well below the 2.3% forecast for the EU25.

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