Finance Minister: COLA will be closer to €10 a week, no tax rate reductions planned

Kevin Schembri Orlando

Sunday, 9 October 2022, 08:30
Last update: about 3 hours ago

Finance Minister Clyde Caruana said The Malta Independent on Sunday that the government “has no intention” of lowering tax rates, but reiterated the government’s promise not to raise tax rates.

The minister sat down for an interview with The Malta Independent on Sunday ahead of the budget presentation on October 24.

The Chamber of SMEs made a series of tax proposals, including asking for a VAT reduction to help companies. He argued that at the moment, the government is receiving more VAT revenue due to rising product prices. The Chamber said that if the government lowers the VAT, it will not necessarily reduce its projected income.

Asked about it, the minister said that VAT will not be lowered. “I have no intention of reducing any tax rates. Our commitment is that we will not introduce new (taxes) or increase rates. But at the same time, the government must have the necessary resources to finance these extraordinary expenses. .”

“The money has to come from somewhere. What we are doing already goes far beyond what other countries are doing,” she said, referring to the support measures in place. “I have to make sure government revenue is protected. We can do all of this because the government remains fiscally responsible.”

The minister was also consulted on the Cost of Living Adjustment mechanism. The expected amount per week next year has been promoted between 8 and 10 euros per week. But with the budget just a few weeks away, the minister has told this newsroom that the amount will be closer to 10 euros a week. “The figures are still being calculated, but from the information I have, it is most likely very close to 10 euros.”

However, he does not believe that companies will close because of this.

As to whether the government will implement any measures to support businesses because of this, he said the government is already doing enough in terms of energy support measures. “We’re spending €600m (on grants), so I’d say that’s a good amount of money.”

Although the government has been direct in saying that the COLA mechanism will not be touched this year, it was asked if it is open for discussion in future years.

“If the employers and the unions manage to negotiate an agreement, why not? The government is open to considering any type of proposal that has the consent of both parties.”

The Government has announced that next year 608 million euros will be allocated to energy and food subsidies.

He said that from the beginning of this year and throughout the summer he studied all government spending “to make sure we got our priorities right.”

The way things are developing in terms of the Russo-Ukrainian war, the finance minister said, “it is becoming more and more obvious that it will not be resolved tomorrow. It is very likely that it will continue for the next few months, if not years, too.” The way things are playing out in terms of the oil cap, and the political fallout from all of that, it’s very likely that energy prices will go up.”

He said that they had to plan to ensure that Malta has the necessary resources for the next year and, if necessary, for years to come. Usually, in terms of numbers, he told her, forecasts are made for the next year and the year after. “This time, I have planned until at least 2027.”

If medium-term energy prices remain fairly high, “then we have to make sure that what we’re doing remains sustainable not only in terms of energy, because of the amount of resources we need,” he said, “but also to ensure that it is fiscally sustainable for the government itself.

As such, he said there was a “reprioritization exercise” to “make sure there’s a voting line that accommodates all that kind of money.”

As for capital expenditures for next year, the minister said they will be higher than this year. “But a significant amount of the funds, he would say around a third, will come from EU funds.”

“This year, the amount of money coming from EU funds will be around 20%. Essentially what we are doing is using more and better EU funds for the next year, which will give us some breathing room in terms of how we re-prioritize our spending.”

That way, he said, part of the funds can be used for subsidies.

As for those downplaying the effects of subsidies, he said that if the government had been absent on subsidies, there would have been a huge impact on GDP and there would have been a permanent shock going forward.

What’s going on right now, regarding energy prices in terms of world economies, he said, “they can’t sustain such a high price forever.”

He predicts prices will stay high this year, “maybe a couple of months next year, until the middle of next year or so, but eventually something is going to have to give. So it’s worth continuing to subsidize energy prices.” And that will allow us to maintain the supply structure of our economy,” he said. “The minute we stop doing what we’re doing, the economy is going to be hit hard.”

He clarified that the 600 million euros allocated to subsidies include a buffer of around 12%, “so the Government could spend less.”

When asked if some sectors will receive less funds next year than this year, he said that there will be some entities whose spending will remain the same or will be a little less.

“Over the years, public spending has increased substantially in different areas, and by significant amounts (…) I am quite sure that all entities can deliver the same production, if not more, with less money. This fixation, that always having to spend money on things to get some kind of performance… at the end of the day, that’s not how efficiency should be delivered. I’m not going to mention specific cases for now, but I’m aware of a a good number of entities that looked into their spending and found enough fat where they can cut back.

University of Malta Funding

There was some controversy regarding the reduction in funding for the University of Malta, reportedly by €1 million. The government was criticized for this measure.

“I would say that it was blown out of proportion,” Caruana said on this subject.

He said he is willing to sit down with anyone at the University and do an audit exercise to see if there are any unnecessary costs or inefficiencies. “And I’m sure we can put the resources into research and beyond, and the inefficiencies that can come from other things, and that are perhaps resulting in waste, can be well over a million.”

“I am sure of what I say, I have spent 12 years lecturing at the University.”

He said that, if he is not mistaken, in the past the University was offered the amount of 6 million euros from the NDSF (National Development and Social Fund) to spend on research “and that amount was never claimed. So much so for the cut of 1 million euros.”

Maintain stable employment in the public sector

He was also asked about employment in the public sector. Employers’ bodies have repeatedly said that public sector employment has been on the rise for almost a decade, expressing concern that the government is taking away employees from the private sector.

Minister Caruana said: “The way things are evolving in terms of recurrent government spending and the constraints that are coming up due to these new commitments, they are all putting their pressure on government spending and how money is spent.” .

“I anticipate that in the coming months and years the government will have to reprioritize, including in this area.”

Asked if he foresees a reduction in public sector employment, he said: “Well, maybe, if it doesn’t reduce, at least it will remain stable.”

A proposal made by one of the social partners during the budget consultation period was the secondment of public employees to the private sector. The minister shot down this idea. “It doesn’t make sense,” he said. “It can’t work.”

Gozo Metro and Tunnel

He was asked about two big projects in particular, the proposed Malta-Gozo metro and tunnel, whether they have been scrapped, delayed or provided details on what will happen to them.

“Well, I’ll just answer your question with a smile.”

When asked to explain, he said: “It’s pretty obvious, isn’t it? It’s about priorities.”

When asked how big the problem of tax evasion is, he said: “It is (big). I’ve never shied away from this argument. I was criticized. It didn’t sit well; I would say with a good number of people who might pay taxes it was part of their culture in the past. I took the necessary steps in the last few months.”

He mentioned a budget measure announced last year, where interest rates on installments had to go up. “We had a situation where it was more worth not paying taxes than getting a bank overdraft. Because the bank overdraft, the cost of it in terms of interest, would have been 5%, 6%. Whereas if you don’t pay your taxes , you would have to pay only 3.6% So now that has risen to 7.2% In addition, he said, the way the department works, in terms of how tax procedures are carried out, is leaving the desired results. “There is much work to be done. The department is getting organized and I’m pretty sure that in the coming months and years there will be a change in terms of this kind of culture.”

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