Friday, 1 December 2000

A Budget 2001 Analysis 2 - The Social Aspects

The Times of Malta

An Attack on the Middle Class

Government friendly critics have hailed this budget as pure magic in its plans to increase tax revenues without the announcements of specific hard measures on the same scale as that contained in the year 2000 budget.

As if by magic the government revenue will be swelled by a further Lm56 million, following the Lm63 million of the year 2000, without actually taxing us. First impressions might suggest that we willing be getting about half the Lm100 million promised in the 1998 pre-election run up as available grants from the EU and the Minister wrongly classified this as tax revenue.

But this is not the case. Quite the contrary. This year the EU grants are only Lm4.9 million which have to finance less than half the additional Lm10 million cost budgetted for the adoption of the National Plan for Adoption of the Acquis (NPAA). We are more than Lm 5 million out of pocket with the EU whereas last year we had net grants of Lm10 million including the Italian Financial protocol. This has now disappeared into thin air. A Lm10 million grant regularly received for the last 20 years has just been allowed to lapse. No wonder the Italian Government is the major supporter of our EU application!

So after all the Lm56 million additional tax revenue planned for year 2001 is being paid by you and me. No two ways about it. During next year we will collectively be Lm56 million poorer to satisfy the financial super-hero`s insatiable appetite for more and yet some more.

Those unions that` have been quick in taking credit for stopping the Minister from taking further harsh measures had better think twice unless they are merely defending the workers who earn a pure minimum wage. This budget is an attack on whoever earns Lm4000 and more with increasing intensity of its viciousness as you go up the scale of the middle class and upper middle class.` Whether it is also a very belated attempt to attack the super-rich still has to be seen as the effectiveness of the benchmarking exercise for the self-employed and professionals does not necessarily guarantee its successful implementation. The successful implementation of the measures on employees ( not self-employed) who earn between Lm4000 and upwards of Lm7500 is however guaranteed.` The squeeze of this sector`s standard of living is equally assured.

Anyone earning Lm4000, Lm5500, and Lm7500 during year 2000 will find out that every lira earned more in year 2001, whether by cost of living increase, annual grade notches, collective agreements or newly imputed taxable income on hitherto untaxed fringe benefits will be progressively taxed at 15%, 25% and 35% respectively.

So a person earning Lm73 per week (they don`t carry you very far these days especially if you have a family to feed, dress and educate) will find that the Lm1.50 cost of living increase will be eroded by deduction at source of 15c National Insurance and 23c tax. With inflation at 3% a Lm4000 earner needs to net post-taxes increase of Lm2.31 merely to stand still. Instead he is getting a mere net Lm1.11 with which he has to finance new taxes like bread price increase (no special Lm10 payment per person this year) cigarette taxes and removal of water and electricity rates as an assured minimum.` You may think that this is not serious but when one is in this income bracket one counts one`s cents not just the liri.

If you are a middle salaried executive working many hours a week without being entitled to overtime you used to accept it because you were entitled to several untaxed fringe benefits. It is not fair to argue these were meant to be taxed in the first place. The Income Tax law has been in force for 52 years; ample time to enforce what needs enforcement. These fringe benefits were not hidden. Many were part of collective agreements like subsidised house loans for bank employees and free travel by Air Malta dependants. The provision of a paid company car had become the unchallenged norm. What was left unchallenged for 52 years is now being challenged and changed overnight. Some middle management executives, especially bank employees with subsidised house loans could be hit by as much as Lm100 per month additional tax.` After deducting your house loan and life policy instalments, your children`s schools fees (this is not discretionary spending) Lm100 a month is a very big percentage of your true disposable income.

This is a savage attack on the middle management, on those who have to work hard to execute the strategies of their management. We have deficiencies in the quality and quantity of our middle management.` The poor state of efficiency of our public sector and the ineffective restructuring of domestically oriented industry bear proof to this. Rather than encourage this crucial sector for economic growth ( just see how many are devoting their limited free time and private funds to follow distance MBA courses)our financial super hero has decided to launch a vicious attack on these sitting ducks who cannot escape his tax hatchet.

After 52 years of neglect the least that was expected was for fringe benefit taxation to be phased in over a three year period in order to give employees time to re-negotiate their remuneration package with their employers in order to take account of the higher taxation impact. Our financial super hero would have none of this and in Mintoff crass one swoop style he edicts the orders which will undoubtedly cut the ground from beneath the standard of living of the middle class and de-motivate them in their work performance right when the economy needs their greater commitment.

With much less disposable income these middle class income group will have to face higher bills in areas of non-discretionary spending. Removal of tax refunds for health and education activities will ultimately lead to higher bills which these sitting ducks will have no option but to pay. Or are they expected to start sending their children to free state schools Or are they expected to queue up behind the closed doors of our regional health centers rather than continue with expensive private health services`

Our finance superior hero wants to address the deficit problem he himself created by destroying the middle class that elected him.

Tomorrow: A Budget 2001 ` economic aspects

Alfred Mifsud

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