The tax refund measure announced last week is part of the 2020 budget, not just the mini-budget, said Finance Minister Edward Scicluna today.
Last week, Prime Minister Robert Abela announced the fourth Covid-19 financial aid package, also known as the ‘mini-budget’, to help businesses get back on their feet post-Covid.
The measures include the extension of tax deferrals to the end of August and the provision of tax refund cheques for full-time and part-time workers.
On Tuesday, Finance Minister Edward Scicluna held a press conference to clarify the way the tax refund measure will operate and the reason behind it.
He explained that the tax refund is based on a 2018 database, so workers will get a refund of that year.
He also said this measure is under the remit of the 2020 budget, so in its entirety, which is on track. “This is really significant because, while government revenue is not on track due to the economic challenges posed by Covid-19, the budget is still going strong.”
Thus, from a policy perspective, the government is still able to honour the tax refund pledge.
Scicluna explained that this is what they refer to as an ‘automatic stabliser’, wherein the government, through its policies and the ones it shares with EU partners, is able to pump €100 million to €200 million into Malta’s economy to compensate for its losses.
“In our opinion, this mini-budget was possible because this is only necessary on a short-term basis as we believe that this time will pass and this is why we are able to take on the burden of bridging the Covid situation with the post-Covid one,” he said while, emphasising that the point of the mini-budget is to help businesses recover.
The tax refund measure is then part of the government’s overall idea to reduce income tax rates and give refunds for past years.
“From the first year, we started chipping away at the income tax and, as a result, the weight of this burden was reduced.”
He explained that it would be easy to just cut-off the tax completely, but when this happens, one would be giving those at the top more than those at the bottom.
Thus, the tax refund is an anti-poverty scheme wherein those who do not earn enough to pay income tax will get the biggest amount, those with an average salary will get a smaller refund and those earning €60,000 or more do not get anything.
“It is aimed to share all the benefits of the country across all of the people,” Scicluna said.
He acknowledged that this measure is difficult to sustain and it will be even more difficult for the government to do so post-Covid.
The cheque that people will receive will vary from €40 to €68 for workers, and this is based on the database from the Tax Commissioner. This will cost state coffers €11.5 million, with 210,000 workers benefitting from it.
“Tax has to be fair, and this is why, on a European level, we are negotiating with the Economic and Financial Affairs Council (ECOFIN) and discussing how the EU grant can be distributed across member states, as well as a possible loan from the EU adjacent to it,” he said.
He explained that the government has been vigilant with the EU, alongside other countries like Germany and Spain, about the travel and importation tax, seeing that Malta is dependent on this for economic growth.