Tens of thousands of parents will benefit from an income tax measure next year in a bid to improve Malta’s fertility rate.
The Budget measure, touted to cost €160 million over three years, will introduce new tax computations and widen tax bands over the coming three years. The measure was announced by Finance Minister Clyde Caruana, and will see the tax burden of families with children reduced.
In total, he said, 68,000 parents are expected to benefit from the measure..
The Finance Minister said that while last year’s tax cut amounted to €500 per household, this new measure will leave approximately €2,400 on average in each parent’s pocket.
This tax saving measure will be implemented over a period of three years, meaning that the tax payable will decrease year by year over the coming three years for those eligible, and will then remain the same in subsequent years, he said.
The minister said that the starting point of this measure is that families with children who pay taxes will continue to benefit until their youngest child reaches 18 years of age, or 23 if still in the formal education system.
New tax tables will be created for families with one child and separate tables for families with two or more children. In families with two children, if one child exceeds 18 years of age and is no longer in formal education, or exceeds 23 years while having been in the education system, but the other child still meets one of these criteria, the family or parents will start benefiting from the one-child tax tables, he said.
The minister said that in Malta’s tax system, there are two computations under which a family raising children can fall – the Married Computation and the Parent Computation. Families under the Married Computation who do not meet the criteria mentioned earlier will continue to benefit from the existing rates, he added.
Married with one child computation
The Married Computation applies in cases where it is likely that only one spouse is working, or the other spouse’s income is minimal.
Currently, these families will start paying tax once their income exceeds €15,000. He said that this threshold will increase to €17,500 next year, €20,000 in 2027, and €22,500 in 2028.
By 2028, the 15% rate will be applied to income between 22,501 and €33,500, and the 25% rate for income between €33,501 up to €60,000. Income higher that that will pay 35% tax.
He added that approximately 2,400 families will benefit under this computation, with an average tax saving of €1,575 by the end of the third year.
He said that over a period of 23 years, including this measure and last year’s tax reduction, a family with one child would have their tax burden reduced by a maximum of €65,000.
Married computation with two or more children
Currently, these families will start paying tax once their income exceeds €15,000. Next year, this threshold will increase to €22,500, €30,000 in 2027, and €37,000 in 2028. This means that the amount that one does not pay tax on will increase by €22,000 over three years compared to today, Caruana said.
By 2028, the 15% rate will be applied to income between €37,001 and €50,000, and the 25% rate for income between €50,001 up to €60,000. Income higher that that will pay 35% tax.
The minister said that approximately 5,000 families will benefit under this computation, with an average tax saving of €3,500 by the end of the third year.
Over a period of 25 years, with last year’s tax reduction and this measure, families with more than one child will have had their tax burden reduced by more than €150,000, the minister said.
Parent Computation with One Child
The Parent Computation with One Child applies in cases where both parents are working and have one child.
Currently, these families will start paying tax once their income exceeds €13,000, the minister said. This threshold will increase to €14,500 next year, €16,000 in 2027, and €18,000 in 2028, he added.
By 2028, the 15% rate will be applied to income between 18,001 and €28,000, and the 25% rate for income between €28,001 up to €60,000. Income higher that that will pay 35% tax.
This means, he added, that over three years, parents earning €28,000 each will save a total of €3,600 in tax between them.
Approximately 23,750 parents will benefit under this computation, with an average tax saving of €1,400 per parent by the end of the third year, Caruana said.
“Over a period of 23 years, this means that with last year’s tax reduction and the one I have just announced, one-child families will have had their tax burden reduced by a maximum of just under €113,000.”
Parent computation with two or more children
The parent computation with two or more children applies in cases where both parents are working and have more than one child.
In total, around 29,300 parents will benefit from this computation, the minister announced.
Under the current rates, these families will start paying tax once their income exceeds €13,000, he said. Caruana explained that this threshold will increase to €18,500 next year, €24,000 in 2027, and €30,000 in 2028. This means, he said, that in three years parents earning €30,000 each who have two or more children will not pay a cent in income tax.
By 2028, the 15% rate will be applied to income between €30,001 and €42,000, and the 25% rate for income between €42,001 up to €60,000. Income higher that that will pay 35% tax.
“This means that over three years, parents earning €42,000 each with two or more children will save around €10,000 in tax between them.” The average tax saving per parent by the end of the third year is expected to be €3,500, he said.
Over a period of 25 years, with last year’s tax reduction and this measure, these families with more than one child will have had their tax burden reduced by a maximum of €257,000 in this computation, he said.
