NEWS | Wednesday, 20 February 2008

Lino Spiteri cautions against tax-cut bonanza

David Darmanin

In a vote-catching frenzy, the four parties contesting the upcoming general elections seem more than happy to flaunt their tax-reduction skills, up “until taxes are almost no longer a burden”, says economist Lino Spiteri.
In this tone, the former Finance Minister cautions the sustainability of the tax-cut bonanza our country’s electorate is being promised.
If re-elected, the Nationalist Party is promising wider tax bands, making the 35 per cent income tax top-rate applicable only to those earning a minimum of €60,000 yearly, otherwise those currently paying the tax top-rate would start paying 25 per cent.
According to Lawrence Gonzi this measure would cost the country €46.5 million. But AD’s Edward Fenech was fast to contradict him, accusing the PN of wrong calculations and estimating PN’s proposals at a staggering €125 million.

Furthermore, the PN’s electoral manifesto features further reforms to succession tax and the removal of the airport departure tax, television licenses and the credit card levy.
Targeting voters whose salaries fall within the same bracket as PN’s ideal niche, AD is advocating an income and corporate tax discount from 35 to 30 per cent for those earning less than €65,000 per annum. However, AD is the only party to date to offer a mitigation measure to partly finance the estimated €23 million tax cut. The Green Party proposed an increase of five per cent in corporate tax rates for Malta’s banking giants HSBC and BoV.
Appealing to employees who fall within lower income brackets, the Labour Party is promising tax-free overtime. While Labour calculates this proposal will cost €4.7 million, the Government is estimating its cost at €28 million. According to figures published by the National Statistics Office however, the cost on government coffers could add up to €14.7 million.
So far, both the MLP and PN are relying on an increase in economic growth to cover their proposed tax reforms.
On its part, Azzjoni Nazzjonali (AN) is proposing a gradual tax cut to a flat rate of 18 per cent for all.
AN, PN and MLP’s official calculations remain unpublished.
“Practically, all the parties are promising to reduce the tax burden and even to slash it until it almost isn’t a burden at all,” economist Lino Spiteri told Business Today.
“The question is whether all this is sustainable,” he cautioned. “If a government doesn’t collect as much from taxes as it requires to finance public needs in an efficient and effective manner, it will soon discover through unpopularity and probably a rising national deficit – that its taxation proposals are not sustainable. As always, the proof of the pudding is definitely in the eating.”