The next year’s fiscal planning was revealed on 19 October by Finance Minister Edward Scicluna, in his last budget in the post. The positive focus of the economic action plan has been shaped largely by the necessary economic reaction to the Covid-19 virus and the impact thereof. Underpinning the vital areas of the economy, education, health, the environment, infrastructure and law and order, the Finance Minister announced a raft of measures designed to continue building on the pre Covid growth, with a view to returning the country’s economy to a surplus situation during 2021. The Minister asserted that a deficit of 9.4% is expected for 2020 and attributed this to the impact of the pandemic. However, these 2020 treasury-spending measures have successfully curtailed unemployment rises beyond the current 4.1%. He added that GDP had decreased by 7.7% in the first half, lower than the Eurozone rate of 9%, though real GDP is expected to fall by 7.4% for the whole 2020 fiscal year but recover by a predicted 5% in 2021 under the new budgetary measures. Public debt is expected to rise from 55% to 59% of GDP, a comparatively low level that has allowed for spending to be drawn down internally without looking beyond Malta for financing. Scicluna also predicted that inflation that stood at 0.18% in September is projected to increase to 1.3% during 2021.
One of Edward Scicluna’s key stimulus measures regarding Covid was the announcement that a second voucher distribution scheme will be implemented for those over 16 years of age; sixty euros for hospitality and forty euros for retail is again aimed at helping those sectors of business through stimulating spending. In addition, the wage supplement programme has been duly extended until March 2021 in order to maintain the successful retention of jobs.
The Maltese economy is predicted to grow by 5% (4.3% real terms) in 2021. This positive news is derived from a predicted continuation of the current steady incline in economic activity, towards a recovery in 2021. This is subject to a degree of dependency on Malta’s trading partners and their positive action geared towards continuity of supply, and the rate at which domestic consumer spending and business activity returns to normal levels.
In business, the following stimulus measures were announced. These include a tax linked, investment based grant offered to fishermen and farmers and is aimed at the regulation moderation of production in terms of waste and market supply. Family businesses are to benefit from a 1.5% duty rate in a measure extended through 2021. Additionally, the VAT exemption threshold has been raised by €10 000 to €30 000.
The Finance Minister has granted an extra day of leave and employees can now enjoy 28 days of leisure. In addition to this the COLA has been set at €1.75 for 2021 and there will be an increase in the tax rebate range which now stands at €45 up to €95 for those earning less than €60 000 per annum. Scicluna has also has engaged with employers to stimulate an improvement in the work life balance of its employees.
A raft of modernisation and stimulus measures were announced in the budget for the property market. A new construction industry regulation authority will be set up seeking to reduce the number of accidents on construction sites, alongside a focus on protecting the environment. This will be established in 2022 and the authority will devise and implement standards and regulations for the industry. Tribunals will be available for the independent contesting of decisions and a compensation for victims of any accidents will be issued via a new fund ring fenced for this purpose.
There is also good news for first time buyers, as duty exemption will be raised to a €200 000 purchase price, from this month. Similarly, normal purchase duty on residential properties will be set at 3.5% on purchases over €200 000. Inheritance tax will also be set at 3.5% on the first €200 000 of property valuation. In the case of children inheriting property from parents for the purpose of habitation, any amount over €250 000 will also be liable to duty at 3.5%. Up to a value of €200 000, in this scenario, the inheritance remains duty free.
Scicluna also announced that during 2021, a final tax rate of 15% increase from the first €100 000 will be applied to all profits derived from the assignment of rights on a promise of sale relating to immovable property. Additionally there will be continued reduced income tax (5%) and duty rates (1.5%) on promises of sale agreements registered by 31st March 2021 concerning the inter-vivos transfer of immovable property in Malta, for the first €400 000, so long as the contract is agreed by December 31st 2021. Finally, the Finance Minister allowed for the possible extension of emphyteusis on commercial properties, allowing for investment on the property.
Authors producing literary works will benefit from a final tax rate of 15% on royalties derived from the sale of their works. The Voluntary Occupation Pension Scheme will benefit from a €3000 income tax redemption and similarly, the Third Pillar Pension Scheme tax exemption will be raised to €3000 per annum and €6000 per annum for married couples where only one spouse works.
From January 2021, there is to be an increase of €520 per child per annum in the foster care allowance scheme. There will also be a €1000 grant available to those who choose to adopt a child. The Finance Minister also announced an additional children’s allowance of €50 per child per annum and this is increased to €70 if family income is on or below €25 318.
Edward Scicluna announced that The Social Security Act would be amended to recognise the surviving partner in terms of a civil union or recognised cohabitant as the widow/widower. Married rates of tax exemption will amount to €3,600 per annum worth of non-pension income exempt from income tax for those couples who both receive a pension. Those who have a full or part time carer at home will receive a subsidy increase to €6000 per annum. Additionally, a top up of the previously mentioned COLA results in pensioners receiving an increase of €5 a week and a tax exemption on pension exemption will be applied up to €14 058 per annum. Finally, the tal-Linja Card eligibility will be lowered from 75 to 70 years of age.
The Finance Minister addressed the concerns the public and the Government have over the response to climate change by announcing a raft of measures designed to enable society to make a greater and more effective contribution to reducing the impact and improving quality of life. Measures include an educational drive to improve climate change knowledge. The issue of ‘Green Bonds’ will launch a greater incentive for renewable energy and decreasing pollution projects. The projects aimed at waste processing, management of organic waste will be continued, and there will be a completion of the waste to energy facility. Recyclable bottle machines will be installed in 2021. Additionally, the importation of single use plastic products will be banned from 2021 with the sale of them prohibited a year later. A private and commercial Green Wall installation project is to be launched.
He also announced that vehicle registration tax and annual road licence tax will be reconfigured using the Worldwide Harmonised Light vehicle Test Procedure, though it was thought that radical changes in fees were not expected. The Vehicle Scrappage scheme for ten-year-old cars will be extended with a maximum grant of up to €7000 for those investing in low emission vehicles. In conjunction with this incentive, the exemption of road tax for hybrid and plug in vehicles will be extended and road license fees removed for the first five years. Reduced night electricity rates for private residences owning electric vehicles will be continued. There will be a grant aimed at the conversion of engines to gas of €400, provided emissions of CO2 are reduced by 25%. This grant can be extended to passenger transport vehicles up to a maximum of €800. The annual road licence fees payable by motorcycles with a cubic capacity between 125cc and 250cc will be reduced from €65 to €25. The schemes granting full VAT refunds to individuals who purchase a bicycle, pedelec or motorised bicycle will be extended. The grant provided in respect of the purchase of motorcycles, scooters and electric motor assisted bikes will be capped at €400. Annual road license fees payable by vehicles that are registered to be used only during weekends and public holidays will be reduced by 35%. Finally in the transport sector, a €10 000 grant will be provided to cover the replacement of taxis with ones that have access for wheelchair users. This grant would be applicable if this taxi is replacing another vehicle which has been registered in Malta for the last 5 years and which is older than 10 years.
In addition to the above measures, the Finance Minister announced that the installation photovoltaic panels, hot water heaters and batteries of varying kinds will continue to be promoted and supported by government schemes. As will schemes to restore wells, to assist vulnerable families with appliance change and those to assist with the installation of reverse osmosis systems. There will be an installation of five Eco-Intermodal Hubs around the island that will enable visitors to access public information, hire an e-scooter or an e-bike, charge their mobile phone and use Wi-Fi.
Edward Scicluna in recognising the challenges faced in recent months in the education sector has made the following changes in order to facilitate learning in this difficult period. Parents will be able to access online education sessions so that they can relate to their child’s educational activities more easily. He also announced free internet for one year to those studying beyond the secondary level.
There will be an increase in investment in the aviation maintenance sector’s infrastructure. A seven year investment programme (€450 000 000) in industrial infrastructure and office space, including Kordin Business Centre, the new Life Science Park and in Marsa, the development of an MSE and logistical centre. Infrastructure developments at Mater Dei, the modernisation of health centres, a new blood bank, a new sports complex at the University of Malta and the modernisation of schools are all projects to be started in 2021. Alongside this, the Finance Minister announced an €11 000 000 investment in sports facilities over the next three years.
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