The thrust of the 2013 Budget presented in Parliament by the Minister of Finance, the Economy and Investments, Tonio Fenech, seeks to be a continuation of the fiscal policy adopted by government in recent years.
It aims to continue fiscal consolidation, strengthen the social safety net, while providing enough incentives for further investment and the creation of further jobs.
During 2012 the economy is expected to grow by 1% in real terms, whereas the average growth in the European Union is expected to be -0.3%. Exports in the first nine months of this year have increased by 33% when compared to the same period last year. In June the number of persons in employment had risen to 151,559, while unemployment is at 6.4%.
Unemployment in the whole of the European Union is at 10.6%. Malta also boasts one of the lowest average rate of income tax in the European Union at 21.7%. The twelve month moving average inflation rate stood at 2.3% in September 2012, compared to 2.73% in September 2011.
The tourism sector also performed very well. The number of tourist departures in the first eight months of this year reached 981,286, compared to 973,909 for the same period last year. Gross income from tourism reached nearly 250 million Euros in the first six months of this year. The balance of payments have also shown also shown improvement with the current account balance being -0.7% the gross domestic product for the first six months of this year, compared to -9.7% for the same period last year.
The fiscal consolidation measures taken in the past years appear to have brought down the fiscal deficit to sustainable levels. The deficit in 2011 stood at 2.72% of the gross domestic product (GDP), while by the end of this year the deficit is expected to go down to 2.34%. The estimate for 2013 is a deficit of 1.74% of the GDP.
The proposed total public expenditure for 2013 is 3.22 billion Euros, compared to an expected total revenue of 3.12 billion Euros. The estimated fiscal deficit for 2013 is of 95.4 million Euros, compared to an estimate of 179.73 million Euros for the whole of 2012. The recurrent expenditure budget is of 2.79 billion Euros, of which 235 million Euros are finance costs on public debt. The recurrent budget is estimated to reach 427 million Euros.
Among the initiatives mentioned in the Budget Speech are:
- The extension of the Micro Invest and the Micro Guarantee Schemes;
- The continuation of the High Energy Users Scheme announced last year and an extension of this scheme to Gozo;
- The continuation of the BioMalta Campus Project with an investment of 38 million Euros;
- The continuation of the project amounting to 16.7 million Euros for the upgrading of the Bulebel, Hal Far and Corradino Industrial Estates;
- Incentives aimed at encouraging innovation and start-ups;
- Fiscal incentives to attract expatriates and Maltese working abroad, having highly specialised skills, to work in Malta.
Expenditure on the promotion of tourism is expected to remain at the same levels as 2012. Moreover funds will be allocated for the development of new routes and for the enhancement of cultural heritage sites.
A number of initiatives have been announced to support training and education, especially apprenticeships. Additional funds shall also be allocated to the Employment Aid Programme and the Training aid Framework. Works on the MCAST Campus project shall continue as well as other infrastructural development at the University of Malta. The road construction projects that have started over the last two years will continue as well as the work on the Cirkewwa terminal.
Budget initiatives in the area of social welfare include the extension of the Pharmacy of Your Choice Scheme, further investment in homes for the elderly, reform in the pensions system, further access to care in the community and tax breaks for persons with disability.
Measures specific for Gozo were also announced, with the objective of generating more economic activity and employment. The fiscal and financial measures in summary include:
- A weekly wage increase of €4.08 to compensate for the increase in the cost of living with full increase also given to pensioners.
- High Energy User scheme for industrial and hotel operators in Gozo.
- Increase in tax rebates for the eligible costs of the filming industry from 20% to 23%. This rebate increases with a further 2% if the filming location would be Malta.
- Extension by two years of the existing Micro INVEST scheme. Further to that, the eligible enterprises would now be extended from those employing not more than 9, to those employing not more than 30 employees.
- New B.START scheme, administered by Malta Enterprise which encourages existing businesses to benefit from a tax reduction of up to €30,000 for the investment in a new start-up company (seed capital) as approved by Malta Enterprise.
- Promotion of infrastructural clusters and networks by providing assistance to the start-up costs of the group such as leasing of buildings and development of e-tools.
- Development of regulatory framework for debt factoring.
- Various amendments to exempt from tax genuine local mergers and divisions which are not purely contemplated for tax planning purposes.
- Launching of short courses for individuals who would like to start up a new business and encouragement of young entrepreneurship as from primary school level.
- Extension of the ERDF Scheme for the Gozitan industry.
- Various proposals to be presented in the Budget Measures Implementation Act for Budget 2013 to enhance the financial services sector of the country and make Malta more attractive as a retirement destination.
- Schemes to be launched to assist 3-star hotels upgrade according to new standards and enforce the 4-star hotel market. Other schemes to encourage restaurants promote the Maltese cuisine and at the same time making use of old buildings in city and village cores.
- Changes in Malta Enterprise Incentive guidelines to assist licensed hotels in the form of tax credits equivalent to 15% of capital expenditure.
- Proposed incentive scheme to encourage the establishment of Boutique Hotels in Valletta, Mdina and the Three Cities. The incentives in question include tax rebates on investment related to the acquisition and enhancements of the proposed hotel site, as well as reduction in tariffs related to MEPA permits and licenses payable to the Malta Tourism Authority.
- Reduction in short-letting licenses for Gozitan operators. Licenses are equally payable both if the property is let to a Maltese or a foreign individual.
- Transformation of ex-Air Malta Head Office into an aviation centre for the logistics, training and other services related to the aviation sector.
- Proposed ex-ship building site in Marsa to be developed into a Maritime Park.
- Extension from 7 years to 12 years in the time period available for a transferor of an immovable property to opt out of the 12% Final and Withholding Tax regime.
- In the case of acquisition of immovable property by individuals or couples and financed through a bank loan, the market value of the property would be that as determined by the Bank’s architect.
- Trial scheme whereby a prospective buyer or seller of an immovable property with value exceeding €250,000, would have the option to request the Inland Revenue Department to send its own architect and issue a market value estimate. This process would be executed during the promise of sale agreement and the valuation would be valid for 6 months.
- Removal of duty on documents payable on transfers of immovable property from parents to their children either through causa mortis or a donation.
- Increase in the price ceiling for first time buyers subject to duty on documents and transfers of 3.5% from €116,468.67 to €150,000.
- Removal of 10-year time period limited for transfers made in favour of children with special needs. This time period was related to duty on immovable property transfers from parents to their children with special needs.
- ACTIVE scheme to assist unemployed youths and registering for work, consisting of training and provision of a 20-hour experience in a business sector indicated in the profile of the youth in question.
- Youths who are unemployed and registering for work may have the option for assistance to start a self-employment activity. The assistance would consist of start-up grants, mentoring sessions and reduction in social security contributions for those who would be able to employ up to 3 persons with them.
- Improvement in the apprenticeship schemes by subsidising the employer’s national insurance contributions paid on the employment of apprentices. Stipends for apprentices will increase from €86 to €95 and by a further €20 in some other cases.
- Extension of training scheme allowance of €25 to individuals earning minimum wage by increasing the eligibility to €300 weekly wage. The allowance will be paid monthly rather than at the end of the training programme.
- Extension of the Youth.Inc programme from 21 years up to 24 years.
- Increase in maternity leave from 16 weeks to 18 weeks.
- Widening of the individual tax bands as follows:
| Rate ||Single Computation (€)||Joint Computation (€)|| Parental Computation (€) |
| 0%|| 0 – 8,500|| 0 – 11,900 || 0 – 9,300|
| 15%|| 8,501 – 14,500|| 11,900 – 21,200 || 9,301 – 15,800|
|14,501 – 19,500|
19,501 – 60,000
|21,201 – 28,700|
28,701 – 60,000
|15,801 – 21,200|
21,201 – 60,000
| 35%|| 60,001 +|| 60,001 + || 60,001 +|
Through this measure, an individual reaching the 35% tax bracket up to €60,000, would be in a position to save €500 in 2013, €1,000 in 2014 and €1,500 in 2015 if he/she earns approximately €45,000. The individual would save €1,200 in 2013, €2,400 in 2014 and €3,600 in 2015 if he/she earns €60,000 or more.
- Increase in the minimum children’s allowance from €350 to €450 and an increase in the children’s allowance rate to €1,115.90 for families living on a minimum wage.
- Introduction of the following feed-in tariffs for PV installations which are not benefitting from any kind of financial grant:
- Installations generating less than 1MW on roof-tops: €0.18/kWh for 20 years;
- Installations generating less than 1MW on the ground: €0.17/kWh for 20 years;
- Installations generating more than 1MW on roof-tops: €0.17/kWh for 20 years;
- Installations generating more than 1MW on the ground: €0.16/kWh for 20 years;
- Plans to launch a new scheme for PV panel installations in households.
- Plans to launch a scheme for households who could not install PV panels on their roof tops to share in a common joint scheme and benefiting from solar energy
- Extension of 40% refund grant (up to €400) on new installation of solar water heaters and 15.25% refund grant (up to €1,000) on installation of double-glazed apertures.
- Increase in excise tax on fuels by €0.02 per litre and on cement by €5 per tonne.
- Residential properties scheduled as Grade 1 and 2 and falling under Urban Conservation Area, will be granted refunds of 25% on restoration expenses up to €5,000. In the case of properties situated in Valletta, the refund rate would be 30%. This scheme is also extended to non-government organisations making use of such properties or devolved Government properties. In this case, the refund rate would be of 25% up to €2,500.
- Individuals or companies purchasing properties outside Urban Conservation Areas for restoration and development would benefit from a reduction of 2% on duty on documents and transfers upon acquisition of the immovable property as well as a tax credit of 20% up to €200,000 on the qualifying expenditure.
- Certain developments within MEPA master plans would be able to benefit from an exemption on building permits and in certain cases may qualify from the fast track development notification order procedure. Such areas identified are Albert Town, Menqa Opportunity Area in Marsa, parts of St. Paul’s Bay and Gzira and tac-Cawla in Rabat, Gozo.
- Reduction in the registration tax of Euro 5 standard motor vehicles up to 30%.
- Scrappage grant of €500 upon acquisition of a new motor vehicle or commercial vehicle of type N1 and scrapping the old vehicle.
- Capping on circulation registration tax on high-emission motor vehicles.
- Reduction of circulation tax on commercial vehicles of type N1 by 12.5%.
- Removal of registration tax on motor cycles with engine capacity of up to 250cc while motor cycles with higher engine capacity will have their registration tax reduced by 25%.
- Removal of registration tax on Classic, Vintage and Veteran motor vehicles which are 50 years old or more. Reduction of classic vehicle age from 35 to 30 and removal of vehicle licenses on such vehicles but replaced by an annual administrative fee of €8.
- All changes with respect to motor vehicle registration taxes will become effective from 29th November 2012.
- Grant of €200 by way of refund for motor vehicles altered to an autogas fuelling system. The scheme is effective 1st January 2013 and closes at 31st December of the same year or until the 1,000 eligible applications are taken up.
- Reduction in the carbon dioxide registration tax by 10% for motor vehicles which were registered since 1st January 2009 and are altered to autogas systems. The adjustment in the license would become effective from 1st January 2013.
- Extension of payment license arrears with Transport Malta up to 31st December 2013.
- Plans to distribute an equipment item to be installed with taps and helps in conservation of water. Employment Training Corporation will launch training schemes to educate in the conservation of water. In relation to this, households in urban zones would be granted 50% refund on the expenditure (maximum of €1,000) for the maintenance of a well or plumbing system to treat second class water.
- Scheme to reduce burden of fuel costs for farmers.
- Scheme to smooth out water source disadvantage as consumed by farmers for the breeding of animals.
- Exemption from VAT on fuel consumed by licensed fishermen to be extended to 2013.
- Scheme to sustain and assist licensed fishermen in the payment of social security contributions during closed fishing season.
- Development of business centre for the establishment of companies operating in Gozo in the financial services, research and information technology sectors.
- Increase in supplementary stipends to students by €300 per scholastic year.
- Refund of 15.25% on sports equipment purchased by households for personal use.
- Increase in the excise tax on cigarettes by 6% and tobacco by 8%.
- Energy benefit grant for household gas consumption from €30 to €40.
- One year’s social security contribution credits for every child, to parents who were born between 1st January 1952 and 31st December 1961 and who had temporarily stopped from employment for the upbringing of their children. In the case of children with special needs, the accreditation would be for the equivalent of 2 years for every child.
- Tax reduction up to a maximum of €2,500 in the equivalent of fees paid by persons with disability to reside in private homes or respite centres.
- Stipend to individuals of up to 25 years of age or up to 3 years after they graduate, if they will be engaged in voluntary work outside Malta.
- Social security contribution credits up to 5 years to individuals taking up voluntary work in Malta or outside Malta, when these individuals go back in employment after more than five years.
- Elderly allowance of €300 to be extended from 80 years to 75 years.
- Widows’ pension extended to widowers and widows who got remarried prior to 6th January 2007.
- In the case of elderly spouses where one of the spouses continues to reside in their home while the other living in an old people’s home or hospital, would have the option to choose between the equivalent of non-contributory pension or 70% of the normal pension, whichever is the most advantageous for them.
The above information is being provided by a joint exercise between 3a and MISCO and should serve as a general guide only. It should not be considered as a substitute for professional advice. For further information please contact