What can we expect from minister Caruana’s first budget?

What can we expect from minister Caruana’s first budget?

As the smoke of the pandemic slowly clears and hospitalisation rates fall, Malta still faces a number of challenges, as minister Clyde Caruana looks to present his first budget as the country’s top dog in financial and economic matters. The pre-budget document suggests that ​​the government will focus on living standards and economic growth whilst addressing environmental issues.

In the short term, global economies are facing rising prices of materials and supply constraints which are reflected in increases in consumer prices. Whilst a small variation in prices may not affect those who are better off, those at the lower end of the income spectrum may need protection. A revision of the COLA mechanism is long overdue and may be on the cards in the new budget. Throughout the pandemic, the wage supplement has already protected those vulnerable by saving around 93,000 jobs, but additional help is expected to this stratum of society, particularly pensioners.

Budgets under the Labour government have more often than not gone hand in hand with the phrase “no new taxes”. Some may be baffled by how keeping taxes at a status quo will gain more revenue. The reason is that Malta is a consumption-driven economy where incentivising spending has great multiplier effects which in turn build up government revenue. Thus, increasing taxation may have an adverse effect in the long run. However, in the buildup to this year’s budget speech, a spotlight has been shone on tax evasion. Estimates indicated that Malta loses around €120 million to VAT evasion every year and public discourse prior to the budget may suggest that tonight we may see efforts to clamp down on this.

Malta is also required to meet more ambitious environmental targets to fall in line with the EU’s Green Deal climate strategy. This will be one of the biggest challenges going forward and expectations are that some measures will be introduced to start bridging gaps and adhere to climate obligations. Emissions from motor vehicles are central to this strategy, with 65,000 electric vehicles expected to be on our roads by 2030. Schemes to encourage the switch are needed to pump up the numbers from the current 4,000.

Whilst government spending should be robust, deficit is expected to be halved. Last year’s budget contributed to an increase of 2.5% of national GDP, according to a report prepared by the PM’s office. Some may dismiss tonight’s budget as pre-election propaganda, reality is that a bold budget is what Malta needs to recover from the pandemic.

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