‘Biggest budget beneficiary will be the taxpayer,’ Finance Minister says

Finance Minister Clyde Caruana said Thursday that the 2025 Budget’s biggest beneficiary will be the taxpayer, as he repeated the government’s pledge of tax cuts to be presented on 28 October.

Answering questions in a Times of Malta event, Caruana said he doesn’t “lose sleep” despite challenges across different sectors, pensions are set to increase too, and he has no regrets on the recent Third Country National (TCN) policy.

Caruana said that the anticipated “biggest tax cut in history” is not a knee-jerk reaction to the results of the June elections, in which Labor saw its lead cut by more than half.

The tax cuts had long been promised but were delayed due to the 2022 Russian Invasion of Ukraine which caused energy prices to increase with the government providing subsidies. He said that due to the international situation it would have been “irresponsible” to decrease taxes then but now, energy prices have been stabilized, allowing the government to honor its pledge.

Caruana said that in this budget, tax cuts will be “sizeable” with tax-bands being adjusted particularly in favor of the middle class in accordance with the Prime Minister’s announcement. When asked who makes up the middle class, he answered that 80% of people would consider themselves within the middle class but added that quantitatively, those with a yearly income of €20-25,000 will benefit.

With regards to debt, Caruana said that to consider it in “absolute terms” is incorrect and pointed out that while the GDP in 2013 was €8 billion, it had gone up to €22 billion by 2025, in other words an increase of 175 %. He said that on Labor government being elected, the burden of debt relative to GDP was 75% but has gone down to around 50% to date.

Caruana disagreed that hand-outs before elections were ‘convenient’ since they had been listed in the previous budget and are set to be given next year too. He said that government has been careful with expenditure.

Asked if he is in control of government expenditure within the Cabinet, Caruana said that he is managing to reach the forecast deficit figures “year in, year out”, with last year’s deficit being projected to be 4.4% but exceeding expectations and reaching 4% . However, “I can’t tell you there is no waste”, he said.

Faced with the issue of tax evasion with 40-45% of companies not carrying out their obligations, he said that it is “unacceptable”. As a remedy, he said that as of 18 months ago an AI system was set up to carry out the checks and balances electronically with the VAT system being up and running since April and the system for corporate income set to be deployed by the end of October.

Caruana explained that the AI ​​system goes away with the time-consuming sample analysis method that takes months to complete instead analyzing all population accounts, as opposed to a sample, being checked within 2 days. He said that this resulted in an additional €300 million in taxes being collected within the first six months.

When asked who the biggest tax-dodgers are, he said that it is difficult to pinpoint, with the problem spanning different sectors over years but he concluded that this crackdown is “long overdue.”

With regards to a new economic model, Caruana said that the people have spoken and the business community has stepped forward; the bottom line is that if the population keeps on increasing, particularly with Third Country Nationals (TCN’s), there will be greater problems in health, schools and infrastructure.

He conceded that while he was in charge of JobsPlus, he had mentioned a need for more foreign workers; However, he said that over time he has called for caution and now sees that the influx of foreign workers cannot continue forever.

Caruana went on to say that government itself isn’t importing labor, rather the economy is employing more labor since it has grown in areas that are very labor-intensive.

Caruana pointed out however that the whole economy will collapse without the TCNs’ participation. He said that the issue boils down to Malta needing foreign workers with the question being, how many, and if the stock can continue to be increased.

Caruana said that one third of national airline KM Malta Airlines is set to be privatized.

This was a condition imposed by the European Commission as part of the deal giving the government the green light to close down Air Malta and set up a new carrier.

Between 30% and 35% of the airline will be sold to the private sector as soon as possible, Caruana said.