EDITORIAL | Wednesday, 19 September 2007

Reduce taxes and revenues will increase

With the forthcoming budget fast approaching government would do well to take a leaf out of President Sarkozy’s forward looking economic reforms.
Essentially, his reforms are based on the premise that the French economy has lost much of its competitiveness and the French need to change their work ethic. The incentive being offered to the French is that the harder one works the less tax one pays with a resultant increase in people’s disposable income.
Malta, no differently to France, is a laggard in competitive terms and successive surveys have shown that limited disposable income is the major concern of people. The test facing government is how to leave more money in people’s pockets without compromising the significant achievements in controlling the deficit and at the same time not threatening competitiveness.
The Prime Minister, interviewed during the programme Reporter last night, quite rightly stated that in no way did he want to compromise the economic successes of the last three years. He said he does not want to have an electoral budget. This statement will have to stand the test of time but the Prime Minister does have a way out.
By reducing taxation and by incentivising people to produce more by working longer hours productivity will increase and the economic fundamentals will not be compromised but rather enhanced.
Admittedly a tax reduction will leave no positive impact on those on the lower rungs who do not pay taxes and rather than adopting some blanket measures the PM can opt for targeted schemes that could help alleviate the social pressures brought about by higher prices experienced during the last three years.
France intends meeting these targets by reducing taxation at the highest level and by not taxing overtime wages. In Malta, years ago, the highest level of taxation lay at 65% before it was reduced to a maximum 35%. The reduction saw tax revenues increase. With taxation on bank deposits capped at 15% more revenues were also collected. Taxation on part-time work was also capped at 15% with beneficial results. The lesson to be learnt is clear: once taxation is reduced revenues increase. It is in this spirit that we would urge the government to keep revising downwards the tax rates on income. It is time for government to seriously consider making overtime work tax-free or taxed at a nominal flat rate.
This will have great benefits on the economy. Firstly, it will serve to further attack the black market and it will encourage people to work harder. Many employees are reluctant to work overtime since it places them in a higher income bracket and consequently a higher tax band. It may also prejudice their eligibility to certain social benefits like children’s allowance. Bearing this in mind many either refuse overtime or they insist that their employers pay their taxes.
In keeping with our desire to see the economy grow, this newspaper would strongly recommend the following budgetary measures.
A bigger shift from tax on income to tax on expenditure. Incentivising people not only to be green but also to live green. Government can reduce the registration tax on environmentally-friendly cars based on the level of carbon dioxide emissions the vehicle emits. At the same time youths should be incentivised to drive mopeds and motorcycles rather than cars.
A flat 15% tax rate on income derived from rented property to encourage a healthy rental market relieving the pressure for couples to actually purchase their first home.
We may find that the present property boom is unsustainable and the quicker we seriously analyse the environmental and economic consequences of having an economy based on the building industry the better. All shifts in favour of value added industries like information technology, pharmaceuticals and other high-end manufacturing sectors are to be encouraged.
VAT should be removed on all activities of a cultural nature and make more funds available to non-governmental organisations which offer a sterling service to the country at large.
Travel taxes should be eliminated since travel is no longer a capricious choice but more than ever an educational experience.
Transport is increasingly becoming a big headache with the problems we face being those of major cities around the world.
Government should partner with the private sector to set up an efficient water taxi service in and around the Grand Harbour to ease traffic congestion in the inner and outer harbour areas.
The White Taxi Service should be liberalised and Government should just get on with the reform of the public transport system to make it more user-friendly. Buses should work on more routes, for longer times and Gozo public transport system must be organised on the same lines as that of Malta.
Government should carry on with its positive discrimination in favour of stipends linked to courses at university, which fulfil the country’s development needs, as it is doing with the case of nurses.
The forthcoming budget should be geared particularly to leaving more money in people’s pockets. People who have more money to spend are catalysts for a stronger economy.