BUDGET16 THE STUDENTS’ REACTION
Published by the Economic Affairs Review Board within the Pulse Policy Forum All rights reserved to the respective authors and Pulse Malta, 2015
INDEX
Foreword
4
Introduction
5
Sustainable Public Finances and Economic Growth
6
The Labour Market
10
Education and Skills
13
Public Transport
16
Energy supply and Environment
18
Gozo - Contributing toward National Prosperity
23
At a Glance
26
FOREWORD This analysis focuses on studying the government’s position and its ambitions in various sectors. The review’s main aim is to analyse and compare the government’s performance to its vision and the promises made during the past years. The Economic Affairs Review Board dissected and discussed the pre-budget document for the year 2016 whilst giving special attention to the budget speech and budget document itself. This document was not only intended to constructively criticize government initiatives, but also to put forward any plausible proposals on our part aimed towards each sector. Special references were made to public finance, taxes, pensions, healthcare, education and transport. The analysis conducted included various statistical elements to help the reader better comprehend the situation in that specific area
JEAN CARL GRECH CHAIRMAN -EARB
INTRODUCTION Given Malta’s solid economic performance over the past year, significantly outperforming its Eurozone partners, it is no surprise that this year’s budget was both upbeat and ambitious. In this year’s budget, the government is targeting continued growth in both the short and long terms with a raft of measures aimed at increasing participation and inclusion in the work force e.g. attracting women into the workforce, and specifically incentivising entrepreneurship. Education also remains a key focus with significant investment being made into all levels of the country’s educational system. Social redistribution was also addressed, primarily through tweaking of the exempt personal tax bands, the upward adjustment of pensions, and the pilot project whereby the government will part finance the cost of home care for the elderly as a measure to alleviate the burden on the State’s care homes. The property sector will have taken note of the Government’s announcement that it will be looking at measures to incentivize the refurbishment and use of abandoned commercial properties, measures to address property locked in inheritance disputes, the extension of the 15% tax on gross rental receipts being extended to the rental of commercial properties, the reduction of the final withholding tax from 8% to 5% on property in Urban Conservation Areas (UCAs) and the halving of the duty on property in UCAs to 2.5%. Finally, the need to upgrade Malta’s infrastructure, particularly the transport network received due consideration as the Minister unequivocally recognized the need for significant investment into the road network, the development of a mix of alternative means of transport, improvements to the public transport system and exploring innovative solutions to maximise the efficiency of our road network e.g. through the imminent introduction of the iSmart Traffic Management System. The broad range of measures, initiatives and incentives announced in this regard is evidence in itself of the gravity with which Government views the current situation.
1 SUSTAINABLE PUBLIC FINANCES AND ECONOMIC GROWTH
Last year’s economic growth was sustained during 2015, having registered an average of 5.1% in real terms, more than double the average economic growth registered in the Eurozone during the same period. Gross domestic product increased by 7%, attributed mainly to increased activity in almost all economic sectors, apart from the manufacturing industry, which registered a reduction of 0.9%, in the ďŹ rst six months, however the same sector registered an increase of 4.9% during the second part of the year. Gross operating earnings during the same period was recorded that it increased by 10.4%, whilst net taxes with regards to production and imports increased by almost 7.5%. The government also expects the economy to sustain its positive outlook for the remainder of the year, to register an overall economic growth of 4.2% in real terms. Estimates published by the government show that private consumption should increase by 3.5% in real terms, whilst government expenditure is expected to increase by 1%, showing certain concerns on public debt, given that the government stated that it is committed to reduce debt, year on year. Moreover, exports are expected to remain constant with no major changes recorded, however imports are expected to increase by 1.4%. Investment is expected to increase by 21.4% during 2015, fuelled mainly due to capital projects relating to the energy sector.
For 2016, economic growth is expected to be retained, however lower levels should be registered and is expected to reach levels of 3.6% in real terms. The government stated that it will be reducing it’s capital expenditure during the upcoming year, mainly due to the large expenditure in the previous one. However, investment with regards to the gross domestic product is expected to sustain the level of 19.6%. Such estimates are based mainly on the economic activity countries Malta trades with registered, 1.5% increase for 2015 and an expected 2.0% increase for 2016. The government also expects its expenditure to stabilise itself for the remainder of this year. One of the most positive announcements made during this past year was that in June the European Commission removed Malta from the list of countries having an excessive budget deficit, thus strengthening Malta’s credibility and credit classification.
VITAL MEASURES The government continued with it’s plan to reduce the income tax, this aligned with the fact that for another year, all those that work or receive a pension less than the minimum wage, do not pay any tax.
The Cost of Living Adjustment for the upcoming year is set to be EUR1.75 per week. Whilst all those athlets, players & coaches in sports will pay a tax rate of 7.5%. Another measure introduced in this budget was that the Overtime worked by Police ofďŹ cers will be taxed with a ďŹ xed rate of 15%, hence not added to the total wage and then calculated together. Pensions were also increased for 12,000 pensioners by EUR 8.92 per week for those older than 75 and by Eur 8 for the rest. The government will be providing those companies that donate more than EUR2000 to the Malta Community Chest fund with a 100% tax deduction on their income. As of January 2016, the price of petrol fuel is set to be reduced by 3c, and that of Diesel fuel by 4c.
2 THE LABOUR MARKET
According to the European Commission (2014), the employment rate of older workers is a key indicator in relating labour market challenges to the sustainability of pensions. Furthermore, PAYG pension schemes require a good balance between contributory years and retirement years, which is not affected just by the employment rate at the end of the working life. One needs also to take into consideration entry ages and the stability of employment over the working life. Employment in Malta according to the last ‘Labour Force Survey’ published in September 2015 stood at 184,871 accounting to more than half the population aged 15 and over. Unemployed persons stood at 10,594 or 2.9 per cent, while inactive persons totalled 164,855 or 45.8 per cent. The activity rate was recorded at 67.6 per cent, out of which the highest activity was amongst persons aged 05-54, at 81.2 per cent. On average 64 out of every 100 persons between the age of 15 and 64 were employed. More than 90 per cent of males aged between 25 and 54 are actively working and are mostly engaged in wholesale, transportation, accomodation and food service provision. The average annual basic salary of employees for the second quarter of 2015 was estimated at â‚Ź16,406, refering to the annual basic salary and excludes extra payments such as overtime, bonuses and allowances. With regards to female activity in the labour market, it is worth nothing that 64.1% of all females are actively contriuting to the economy. 40.6% of which are engaged in public administration, defence, education, healthcare and social work activities. More tax incentives designed for women returning to work is encouraged. Combining these incentives with the facilities of childcare centres and after-school hours, should encourage more women to enter the labour market. With regards to female activity in the labour market, it is worth nothing that 64.1% of all females are actively contriuting to the economy. 40.6% of which are engaged in public administration, defence, education, healthcare and social work activities. More tax incentives designed for women returning to work is encouraged. Combining these incentives with the facilities of childcare centres and after-school hours, should encourage more women to enter the labour market.
The EARB welcomes the Maternity Leave Fund set by the government, out of which employees will be refunde for payment of pai maternity leave. This measure was long overue and many believe would eliminate the main disincentive for employers to employ women of child bearing age due tot he cost of maternity leave. Employees in the private sector now are contributing to this fund, independently of whether their employees are men or women, and get reimburse for payment of maternity leave. The free childcare centres program is being continued, thus aiding thousands of women to enter or re-enter the labour force hence contributing to the economy, whilst it is estimated that EUR 5,000 are being saved per child through this measure. Teachers will again be able to apply for a scheme of paid study leave for them to improve their professional and academical skills. Working grandparents should be allowed to take time off and share parental leave pay to help care for their grandchildren. Parents should not only be able to share leave between them but also share their leave and statutory parental pay with working grandparents. A similar policy has been proposed by the british government and should be implemented in the near future. We believe that such a policy would aid both husband and wife, and also single mothers who, without a partner to share leave with, will now be able to do so wth one of their child’s grandparents. This policy may also help arents to return to work more quickly if they want.
SKILLS COUNCIL The government has recently confirmed that it will be setting up the skills council, in a bid to adress the skills gap present in varios sectors in Malta & Gozo. Several firms in various industries are actively searching for emloyees holding specialised skills, when such workers are not found in the local labour market, most firms are turning to international markets toa ttract such workers to work in Malta. Attracting foreigners to work in Malta and contribute to the local economy may be considered as a positive happening, however the EARB believes that the council should actively search for ways on how to attract more locals to earn skills which are mostly required by the industry.
3 EDUCATION AND SKILLS
The EARB notes that urgent needs of educators in schools are once again not mentioned. The EARB was expecting that these concerns, which also emerged in recent studies conducted by Government, would be a priority for the Government itself. One such concern is the lack of necessary human resources support to cope with administrative and other bureaucratic aspects in schools. In fact, studies revealed more than 90% Heads of Schools take up most of their time on endless bureaucratic tasks instead of carrying out curricular leadership at their schools. Furthermore, human resources are sorely needed in both Primary and Secondary schools. The budget speech also fails to provide support of on call personnel for kindergartens and LSAs address, with the result that when there are kindergarten assistants and learning support assistants absent, children might have to be sent home. The EARB welcomed a number of measures announced in the budget including the earlier screening of children so that special needs are identiďŹ ed and support provided at an early stage, the extension of sabbatical leave and the roll-out of the tablets project in 2016. Also, at last new laptops will be provided to teachers, LSAs and Kindergarten Assistants in the coming months. With regard to MCAST, one has to acknowledge the continual infrastructural upgrades. However, the budget fails to address an acute overpopulation problem at the institute of art and design which is over populated by more than 400 students. This overpopulation is causing huge problems in logistics and organisation. Meanwhile, it is good to note that at last the details of the new ITS campus are known. Infrastructural work, extensions and the building of new schools are also welcomed. On the university, the EARB welcomed the developments on Quality Assurance which will inevitably increase the various aspects of quality of the institution. Also, the stipends for mature students are a positive measure that will increase lifelong education. Another positive incentive is the grant of EUR 233 to be given to each student studying at the ITS.
A higher stipend should be considered for those students whose prospective career industry is currently highly demanded/has a shortage of human resources. In addition a higher stipend can be considered as a reward to students that either ďŹ nish their degree in time or those that gain relatively high grades.
4 PUBLIC TRANSPORT
This month Pulse has conducted a study and subsequently published a document putting forward a number of proposals to reduce traffic-related issues for students and the society as a whole. This document was the result of a questionnaire distributed among over 1,000 Junior College students, in which 71% of students expressed the view that school should start later than the current 8 am due to traffic problems. In its document, Pulse identifies the main contributors of the current traffic issue, with the topmost being that the current system does not take into account the different social realities, including the daily commute of students to their place of education. This is only intensified when concerning Junior College, with around three thousands students crossing over from different localities to Msida each day. The major proposal Pulse is putting forward consists in the setting up of a number of‘Village Groups’: collection of localities roughly planned on the electoral district map. This would form the basis for a new public transport service whereby a ‘Student Bus’ servicewould be introduced each day between 06:45 am and 07:30 am. Pulse is suggesting that the frequency of the trips be determined upon the total number of registered students from each district, thus enabling Malta Public Transport to focus on the areas where demand is highest. What would distinguish this service from the current routes is that instead of the several bus stops spread around the locality, Student Buses would have central pick-up points, easily accessible by students within a five-minute walking distance from their homes. Apart from this main proposal, the document presented also included other concrete suggestions, such as the introduction of a ‘water bus’ service from Sliema, Gzira, and Valletta to Msida, as well as measures to decinsentivise heavy vehicles and ‘slow-moving’ means of transport to get on the road during the rush hour. This includes construction vehicles as well as the traditional horse-drawn carriages. Pulse also reacted with optimism to the Government’s proposal of introducing a tidal traffic system for four-lane roads, however warned on the possibility of creating bottlenecks in areas with less-equipped infrastructure. In the meantime the EARB suggests that the possiblity of heavily subsidising the use of public transport during the rush hours should be given serious thought and studied thoroughly.
5 ENERGY SUPPLY AND ENVIRONMENT
As part of its 2015 Country Specific Recommendations (CSRs) for Malta, the European Council recommends that Malta should: “Diversify the energy mix in the economy, including by increasing the share of energy produced from renewable sources.” When this government was first appointed to office back in 2013, it inherited an energy sector that was more of a liability to the local economy. In light of this, the government set out to reform the energy system on the islands and made such a policy a priority. Its first take on the problem was to lower the dependency on oil imports so as to cut on electricity generation costs, and in the process lowered utility rates to both households and businesses. This was a successful move by the government, both politically and economically. This was the main pillar of its strategy that saw a great deal of foreign direct investment within the domestic energy industry. However, it should not rest on its laurels and let down its guard. Indeed, the pre-budget document 2016 outlines further measures that the government has, or is about to, take on board to further to improve energy efficiency and reduce greenhouse gas emissions.
DIVERSIFY THE ENERGY MIX AND ENERGY SOURCES In its bid to diversity the energy mix, the government is committed to substitute heavy fuel (oil) with natural gas for the generation of electricity. Consequently, as promised in the electoral manifesto, The ElectroGas Malta Consortium will be constructing and running a Combined Cycle Gas Turbine plant and a Liquefied Natural Gas facility. Enemalta is expected to receive its first gas-fired electricity by June 2016. It is suggested that government should prioritise such a project so as not to fall behind. Further measures to diversify energy include the connection of Malta to the European energy grid via the electricity interconnector that was successfully inaugurated on the 9th of April of this year, the same date the Marsa Power Station was decomissioned. Secondly, in the 2016 Pre-Budget Document, the government also outlines that work is underway on connecting Malta to the trans-European Natural Gas Network by means of a 155 Kilometre pipeline in Sicily to deliver the gas for electricity generation.
RENEWABLE ENERGY AND ENERGY EFFICIENCY A review of Malta’s National Renewable Energy Action Plan (NREAP) is at an advanced stage and will soon be subject to public consultation. According to the NREAP submitted in 2010, Malta plans to attain the 2020 renewable energy targets through various identified major projects of solar, wind, and waste to energy combined heat and power plans. However, studies show significant environmental concerns surrounding the proposed wind farm projects. Consequently, renewable energy will thus be generated from a higher number but smaller capacity sources of renewable energy spread across the Maltese Islands. The 2016 Pre Budget Document highlights that priority will be given to deployed technologies, primarily photovoltaic (PV) systems and solar water heating. Incentives to invest in PVs have been handed out in the form of grants and attractive feed-in tariffs. Local households where also assisted by means of schemes financed through national and European Regional Development Fund funds. The scheme launched in 2013 was taken up by March 2014 and its result was an installation of around 23 mega-wat power of PV systems. By the end of February of this year, just over 8,000 households benefitted from this grant. The government is negotiating on appointing new ERDF funds to further entice PVs being deployed within local households and businesses. This government envisages Malta as being a centre for energy-related services. Our geographical position acts as an advantage in this case since we’re our location is ideal in serving as a platform to cater for both Europe and MAGHEB nations. Indeed, the Pre Budget Document 2016 highlights that Shanghai Electric Ltd plans to open an energy service centre in Malta which will service their operations in Europe, Africa, and Turkey. In sum, we think that this government is on the right path to transforming the energy sector from a burden on the local economy to an operator of economic growth. It has already borne fruit in terms of lower utility rates at the benefit of households and businesses but with closer attention and commitment to deadlines, the government can register populous progress within this sector. It is also estimated that by substituting heavy fuel with gas will reduce emissions by half and particulate matter (coming out from chimneys) by 90%. The closing down of the Marsa Power Plant was another significant milestone. It is expected that such measures will improve the quality of air which is an integral requirement for a health environment for
Other forms of incentives should include those aimed at insulation and double glasing, since through such methods less energy and heat is lost. Energy-efficient lightning also manages to reduce one’s electricity bills.
THE ENVIRONMENT - TOWARDS A GREENER ECONOMY This brings us to another important and rather ‘hot’ topic: the Environment. Energy and the Environment go hand in hand and, as is evident in the Pre-Budget Document 2016, this government has put forward proposals towards a greener economy. In accordance with the Climate Action Act, Malta is working on the development of a low Carbon Development Strategy with several sectors already undertaking studies that will feed into the strategy, including an ‘Energy Roadmap 2050’ study that will determine a cost-effective path towards decarbonisation of the energy sector. Measures taken for environmental protection are always aimed at bringing about change to those socio-economic practices identified as creating adverse effect on the environment. In light of this, we recommend that government should embark on a further reform of public transport as a chief contributor to lower emissions. The 2015 National Reform Programme for Malta outlines that such a reform has been kick-started buy the adoption of the use of a more efficient bus fleet. However, more effort needs to be made to encourage an effective cultural shift towards the use of public transport and away from private transport. The amount of traffic on local roads is beyond limits. Thus, such a reform should is expected to bring about a reduction in greenhouse gas emissions from public transport. The government should look further into this issue. The Pre Budget Document 2016 also expresses the government’s efforts to further increase responsibility and participation in waste separation amongst the general public. The government is committed to move further into this direction by improving its waste collection system in 2016 mainly through the introduction of new incentives to ensure Malta’s recycling potential, thereby lowering costs for business, industry, and households. In addition to this, the government should further look into the education of the said sectors, mainly households. This is because partisanship may come into play when deciding whether to recycle or not and so the general public must come to terms with the fact that this is a national environmental concern – contributing towards the common good – rather
than a political (or partisan) matter. The challenge cater for the necessary development needs required to not only maintain Malta’s competitiveness but ensure a better quality of life in a healthy environment has been undertaken with the adoption of the Strategic Plan for Environment and Development in July of this year. The holistic approach adopted allows for greater co-operation amongst numerous national plans and policies with a view to use land and sea resources sustainably.
6 GOZO
CONTRIBUTING TOWARDS NATIONAL PROSPERITY
In the future, Gozo must be portrayed as a window for economic-growth and job opportunity, and not just as the sister-island of Malta. This is the dream of many Gozitan youths! It is up to the policymakers now as to how much they can make it happen. As clearly stated in the Pre-Budget Document 2016, in Gozo the unemployment rates in the age groups 20-24 and 25-29 are persistently higher than the rest. This is a strong indication that Gozo offers less employment opportunities to the younger generation. Economic productivity, measured in per capita GDP, standing at around 75 percent to that for Malta clearly shows a long term issue with development. Furthermore as stated in the Pre-Budget Document 2016, this Government is committed to reverse this trend. It is committed to make the necessarily investment in the human, infrastructural and institutional capital to enhance the potential of Gozo. Analyzing the performance of the past 2 years, it is clear that the government is not giving up to regenerate the Gozitan economy and signs of improvement are clearly starting to take shape. The EARB also welcome the fact that this government is now in the final stages for the adjudication of the cruise liner terminal and the study for preparation of a new buoy in Xlendi. Such investment would surely enhance the potential of Gozo. Moreover the EARB is also satisfied with the fact that this government has not given up its studies regarding a green/rural airfield in Xewkija. This airstrip could be used by planes belonging to the six flying schools operating in Malta. Such a project will further improve the economy and the physical accessibility of Gozo.
INCREASE IN MAINTENANCE GRANTS FOR GOZITAN STUDENTS The Economic Affair Review Board has always looked for the interest of students, in particular Gozitan Students. In October, 2013 the Economic Affair Review Board (EARB) issued the “Pre-Budget Document The Students’ Reaction”. In this document which was presented and discussed with the Minister for Finance Prof. Edward Scicluna, the EARB proposed an increase to such grant for Gozitans. The main reason for such an increase is, that for the majority of Gozitan students, such a grant is falling short of the expenses related to rent and transport. Moreover this grant completely ignored from the agenda other vital expenses such as water and electricity bills and telecommunication
expenses which are a basic need for students living on their own. Therefore as an organization the EARB highly welcomes the fact that such a grant has been increased by €300 annually.
ACHIEVING MORE DOMESTIC TOURISM According to the government, Gozo’s identity is a strength and must be promoted and enhanced. This can be further achieved by organizing more cultural events like Notte Gozitana which would even help to develop more the local talent. One can also organize more ferry-reduced-fares weekends throughout the winter to attract Maltese youth to spend the weekend in Gozo.
SINGLE CARD FOR FERRY AND BUS TRANSPORTATION The introduction of Tal-Linja Cards, gave an opportunity to individual to top-up their cards and use this system to replace the traditional bus ticket system. One can extend such a system to ferry tickets and help commuters to avoid the hassle of waiting in line to purchase a ferry ticket from the booth.
FAST FERRY SERVICE Again such a proposal was not mentioned in this year’s budget. As studies for a permanent link between the island is underway; one has to acknowledge the fact that such a measure is long-term and needs quite a number of years to be completed. However if a Fast Ferry Service would be included it would surely be of benefit in present times.
7
AT A GLANCE
• The government will provide a subsidy for the wages of disabled employees of up to €125 per week, a refund of 25% of the wage paid and cover the social security contributions of such employees • Companies who fail to adhere to the rules on employment of disabled persons will be liable to a contribution of Eur1,600 per annum per employee • The 7.5% tax on income earned from sports will be extended to include players and coaches of all sports • Certain eco-contribution taxes to be substituted with excise taxes, with an aim to phasing out the eco-contribution by 1st September 2016 • Excise tax on cement, tobacco, fuel and alcohol to be increased • Licenses for motor cycles and quad bikes fixed at €10 per annum for a year • Individuals buying fuel efficient motor vehicles will benefit from a cash grant depending on the type of vehicle and Co2 emissions • The duty exemption for first-time buyers will be extended retrospectively from 1st July 2015 • 15% final withholding tax on rental income will be extended to commercial properties (not between related entities) • Corporate group income tax consolidation to be introduced • Corporate donations in excess of €2,000 to MCCF to be allowed in full as a deduction for tax purposes, also a 150% deduction to be granted for donations to the arts • ME grants to be made available for start-ups and the development of small manufacturing plants persons will be liable to a contribution of Eur1,600 per annum per employee • The 7.5% tax on income earned from sports will be extended to include players and coaches of all sports • Certain eco-contribution taxes to be substituted with excise taxes, with an aim to phasing out the eco-contribution by 1st September 2016
• Excise tax on cement, tobacco, fuel and alcohol to be increased • Licenses for motor cycles and quad bikes fixed at €10 per annum for a year • Individuals buying fuel efficient motor vehicles will benefit from a cash grant depending on the type of vehicle and Co2 emissions • The duty exemption for first-time buyers will be extended retrospectively from 1st July 2015 • 15% final withholding tax on rental income will be extended to commercial properties (not between related entities) • Corporate group income tax consolidation to be introduced • Corporate donations in excess of €2,000 to MCCF to be allowed in full as a deduction for tax purposes, also a 150% deduction to be granted for donations to the arts • ME grants to be made available for start-ups and the development of small manufacturing plants • Tax credits to be made available for R&D and knowledge transfer activities • Micro-invest to be extended with a max €50,000 tax credit to be made available for female entrepreneurs • Entrepreneurs investing in Gozo and employing people for a minimum period of three years will be eligible to a refund of up to €5,000 per employee • Reduction in VAT for sports activities e.g. gym memberships, fitness centres, football nurseries etc.. from 18% to 7% • Reduction in duty on the transfer of property in UCAs from 5% to 2.5% • Reduction in final withholding tax when a property is restored and sold in UCAs from 8% to 5% • 10% initial deduction of capital expenditure and 2% annual wear and tear capital allowance to be extended to office buildings • Increase in tax deduction allowed for companies investing in electric
vehicles from 125% to 150% of cost • An environmental contribution to be paid by tourists amounting to €0.50/night in Malta not exceeding a total of €5 per visit • Individuals in receipt of earnings or pension equal or less than the minimum wage will continue to be exempt from income tax
CONCLUSION In its budget document, the government states the belief that this country is in the right direction, to stabilise and improve the country on all fronts. It aims to achieve its main target of long term stability which should in turn allow for the local economy to grow even further. In our analysis it has been noted that the government plans to improve its financial stability so as to be in a better position to invest in main sectors such as education, healthcare and energy. Moreover, schemes are planned to be launched in order to attract more private firms to be attracted to invest their capital in Malta. Through job creation, and sustained economic growth, the government aims to keep Malta on its way in having an inclusive society and a strong economy.
THE PULSE ECONOMIC AFFAIRS REVIEW BOARD
JEAN CARL GRECH JJ AGIUS ANTHONY CORDINA GLEN MIFSUD