Introduction 

The budget speech for 2023 was presented by the Minister of Finance and Employment yesterday evening with the promise of yet another year without the introduction of any new taxes despite the economic uncertainties.  Most of the measures are aimed to assist vulnerable persons who are struggling due to the high inflation.

 

The Economy

Despite the economic challenges the world is facing, the Government is still forecasting an increase in the GDP by 6% in real terms for 2022 and 3.5% for 2023.  The annual inflation for this year is expected to reach 5.7% and then to fall to 3.7% in 2023 as long as the government manages to contain and absorb the increase in costs related to the energy sector.  The government is indeed estimating that the investment necessary to absorb the increase in cost of energy and cereal prices is €600 million or around 10% of the budget.

Expected economic growth for next year is expected to be 3.5% in real terms and 7.3% in nominal terms.  Employment rate is expected to increase by 4% whereas the unemployment rate is expected to by around 3.1%.

National debt is expected to amount to 57% and 59.1% of the GDP in 2022 and 2023 respectively.

 

COLA

The Cost of Living Adjustment (COLA) announced for 2022 for all employees, pensioners and people on social benefits is one of the highest ever announced and amounts to €9.90 per week.  Students’ stipends will also be increased pro-rata.  Pensioners will also have an additional COLA of €2.60 per week to help mitigate the hardship they may encounter.

 

Income Tax

  • The tax-free bracket for pensioners will once again increase so that pensioners will not be subject to income tax even after the increase in pensions and COLA announced during this budget.
  • Qualifying pension income derived by pensioners remaining active after retirement age will be exempt from tax. The gradual exemption will amount to 20% of the pension income during 2022, 40% in 2023 until becoming fully exempt by 2027.
  • An annual tax credit of €200 will be granted to parents who have children with a disability.
  • Increase in the tax deduction to parents for children’s sports, arts and cultural activities to €300.
  • The tax refund will be given once again this year.  Persons earning less than €60,000 will be entitled to a refund ranging between €60 and €140.
  • The royalty income to authors and co-authors will be subject to a reduced income tax rate of 7.5%.
  • Extension of the Micro Invest scheme to social enterprises.
  • Possible changes to certain individual residency programmes such as the Global Residence Programme (GRP) and the Malta Residence Programme (MRP).

 

Social measures

  • Increase in paternity leave.
  • Extension of the In-work benefit of €150 to employees working in certain sectors of the economy whose income does not exceed €20,000.
  • Increase in children’s allowance by €90 per child.
  • Tax credit of €200 for parents of children with special needs.
  • Additional grants for low-income earners.

 

Immovable Property

  • Qualifying first time buyers may benefit from a grant of €10,000 receivable over a period of 10 years.
  • Extension of the reduction in duty on documents upon the purchase of immovable property for first time buyers, second time buyers and purchase of immovable property in Gozo.
  • Extension of the VAT scheme for the restoration of qualifying properties introduced in the previous budget.

 

Environment

  • Extension of the fiscal incentives for persons opting to purchase electric vehicles.  The capping of the grant on such purchases has been increased to €12,000 and also applies to motors, mopeds, pedelecs and motorised bicycles.
  • Extension to the exemption from registration tax and licence fees for the first five years upon the purchase of electric and plug-in hybrid cars.
  • Extension of grants for the installation of PV panels on coaches and minibuses.
  • Increase in the charging points for electric cars around the island.

 

Businesses

  • ‘Start in Malta’, a one stop shop for start-ups was announced to assist start-ups.
  • Increase in cash grants provided by the Malta Enterprise to companies investing in digital and sustainable projects up to a maximum of €100,000.
  • Additional financial assistance in form of a 10% tax credit to start ups and Gozitan businesses.  The tax credit will increase to 20% if the investment reduces the carbon footprint.
  • The introduction of a masterplan for further growth within the aviation sector with the aim to develop economic niches like leasing and cargo, drones and electric vertical take-off and landing aircraft.
  • Extension of the possibility to transfer unabsorbed capital allowances in YA2023 to another company within the same group which accumulated during 2020 and 2021 due to losses suffered as a result of the COVID-19 pandemic.
  • Extension of the reduction in Duty on Documents (at 1.5%) upon the inter-vivos transfer of family businesses.

 

Conclusion

The budget for 2023 does not introduce any new taxes but it also lacks new incentives since most of the incentives are an extension of existing ones.  It is clear that the main aim is to control inflation primarily through hefty energy subsidies and assist vulnerable people through social measures.     Whilst the national debt is still within acceptable limits, given the global uncertainties the world is experiencing, one may wonder whether the budget is sustainable and whether Malta will indeed experience positive growth even if the prospects within the Eurozone are not so bright.