Malta Budget Highlights 2019
The thrust of the 2019 Budget presented in Parliament by the Minister of Finance, is based on the premise of reaping the rewards of the country’s economic success.
Fiscal and Economic Review
The Maltese economy continued to grow strongly in the first half of 2018. Indeed, the Maltese economy grew at a nominal rate of 7.9 per cent, or a real rate of 5.4 per cent outperforming the average growth recorded in the EU during the same period. This performance is slightly lower to that registered in the same period of 2017. Household consumption increased by 5.9 per cent in the first half of 2017 when compared to the equivalent period in 2017 and public consumption as well increased by 7 per cent in the same period. Growth in domestic consumption continued to be supported by strong and positive developments in the labour market.
During the first six months of 2018, Gross Fixed Capital Formation declined by 1.5 per cent mainly reflecting the base effects related to the investments in the energy sector and in aircraft equipment. Throughout the same period, Malta maintained its position as a net exporter of goods and services with registered import growth of 1.9 per cent, reversing the decline registered in 2017. Conversely, the export growth rate was lower than the growth rate recorded during the same period last year, at 0.8 per cent. Employment growth maintained its positive momentum over the 12 months ending March 2018, while the unemployment rate sustained further declines reaching 3.9 per cent during the first quarter of 2018, a drop of 0.2 percentage points over the same period last year.
In September 2018, the 12-month moving average rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) for Malta stood at 1.7 per cent, whereas the annual rate stood at 2.5 per cent. Inflation pressures have started to pick up in recent months, however, the annual rate of inflation is expected to remain below the 2.0 per cent threshold in this and the coming year.
In 2017, the current account balance stood at 13.8 per cent of Gross Domestic Product (GDP), an increase of 6.8 percentage points over 2016. This trend persisted during the first half of 2018, with the current account balance standing at 12.9 per cent of GDP. Malta’s capital account balance for the past few years showed consistent net transfers of assets from foreign countries to Malta, mainly pertaining to government transfers of tangible assets and include transfers from the EU budget.
The Maltese economy recorded a surplus of €393 million during 2017 or 3.5 per cent of GDP. During the year, the debt ratio continued its downward trend and stood at 50.8 per cent of GDP. Between January and August 2018 recurrent revenue, as reported in the Consolidated Fund, increased by 6.2 per cent, while total expenditure increased by 7.6 per cent. The increase in revenue can be attributed to higher tax revenue which outweighed the decline in non-tax revenue, the latter mainly reflecting a decline in revenue from EU Grants. Tax revenue increased by 9.4 per cent and stood at €2,517 million during the first eight months of 2018. The increase in total expenditure during the same period, was due to an increase in recurrent expenditure of €174 million and an increase in capital expenditure of €26 million. Interest on public debt dropped by €5 million. Public sector borrowing requirement increased from €60 million to €283 million, reflecting developments in the sinking fund contribution and direct loan repayment.
The Maltese economy is expected to retain a positive momentum in the second half of 2018, as overall growth is expected to increase by 5.8 per cent in real terms by the end of the year with growth driven by the domestic side. Throughout 2019, real GDP is expected to remain strong, reaching a growth rate of 5.3 per cent. Domestic demand is expected to remain strong.
In particular, investment is expected to gather pace on the back of the materialisation of a number of large-scale investment projects of a construction nature particularly in health, real-estate and tourism, while the contribution of private consumption and government expenditure is expected to remain robust even if at a slower pace when compared to 2018.
Growth in employment is expected to remain strong and increase by 5.0 per cent in 2018 and 3.7 per cent in 2019. Moreover, the unemployment rate is to reach 4.0 per cent in 2018 and 4.1 per cent in 2019, standing well below the EU average rate. This reflects ongoing efforts in promoting and sustaining active labour market policies.
The HICP inflation rate is expected to average 1.7 per cent by the end of this year and 1.9 per cent in 2019. During 2018, the General Government balance is expected to be in surplus at 1.1 per cent of GDP. The balance is expected to improve somewhat over the course of 2019 and reach a surplus of 1.3 per cent of GDP. Meanwhile, for 2018, it is expected that the General Government Gross Debt ratio reaches 46.9 per cent of GDP and to decline further to 43.8 per cent of GDP in 2019. These developments are underpinned by the improvement in the underlying fiscal position.
Fiscal and Financial Measures
The fiscal and financial measures in summary include:
- Cost of living increase of €2.33 per week for all employees, pensioners and people who are receiving social benefits.
- Students’ stipends will receive a pro-rata cost of living increase.
- An additional day leave for employees in compensation for those public holidays falling on week-ends.
- Employees who were earning the minimum wage during 2017, received an increase of €3 per week during this year and will receive another increase of €3 per week during 2019.
- Increase in the Children’s Allowance for families earning less than €20,000.
- The tax refund received during 2018 will be issued again during 2019 to all employees.
- All part-time employees who are on the single rate of tax and whose income from part-time work exceeds €9,100 but does not exceed the minimum wage will be exempt from tax.
- Self-employed persons who close down their business activity and register for work will be entitled to the unemployment benefit.
- Members of the country’s Security Forces injured in their line of duty will be entitled to receive a benefit.
- Non-Contributory Medical Assistance will increase by €5.14 per week for married couples who both suffer from chronic illness.
- Pensioners will receive an additional increase of €2.17 per week.
- Pensions amounting to €13,434 will not be taxed.
- Service pensions will increase by €200 and a revision of the method in which these pensions are calculated will result in an increase of €11 per week.
- Pensioners who have reached the age of 75 years and who are still living in their own homes will receive the sum of €300.
- From January 2019, people who paid contributions but are not in receipt of a pension will receive an increase of €50 bonus. The bonus of those individuals who paid more than 1 year’s contributions but less than 5 years, will increase to €200. The bonus of those individuals who paid more than 5 years’ contributions will increase to €300.
- Public sector workers can now postpone retirement and benefit from an increased pension, in line with private sector workers.
- Arrears pension payments to ex-employees of the Malta Electricity Board or their heirs will be paid during 2019.
- Another issuance of bonds to individuals who attained the age of 62 years - Savings Bonds62+.
- Additional Assistance for People with Severe Disability – from January 2019 this will increase from €140 to €150 per week.
- Increase in Allowance for Children with a Disability – this shall increase to €25 per week.
- Allowance for Carers extended to those persons who are married up to pensionable age and living under the same roof with an elderly person.
- Third Pillar Pension Scheme and Voluntary Occupational Pension Scheme – from next year, the annual financial investment will be exempt up to a maximum of €2,000 per year.
- Increase in the tax deductions for children attending independent schools: €1,600 per child per year at kindergarten level; €1,900 per child per year at primary level and €2,600 per child per year at secondary level.
- Refund of VAT on the purchase and installation of Reverse Osmosis equipment or equivalent for domestic use. This will be capped to €70.
- From January 2019, the maximum grant for wedding expenses will be increased to €2,000.
- The reduced VAT rate of 5% on books and printed matter will be extended on books, newspapers and publications provided electronically. This does not apply to publications consisting mainly of adverts, audio music or videos.
- The one-time grant on the purchase of a musical instrument has now been extended to also include purchases of musical instruments from abroad.
- The reduction in the stamp duty, from 5% to 1.5%, on the transfer of a business from the parents to the children introduced in 2017 will continue in 2019.
- Ex-gratia payment to those who registered their cars in 2008.
- The White Paper entitled: “White Paper Renting as a Housing Alternative” is proposing contracts to stipulate a period of time, obligatory registration of rent contracts, to establish a minimum time period to advise on the termination of a contract from both the landlord’s and the tenant’s end, enforcement on irregularities as well as more efficiency on the solving of disagreements.
- A new scheme will be introduced with respect to rent benefit – this benefit will vary from €3,000 to €5,000.
- An incentive for landlords who rent the property at moderate prices and for a period of 7 years will be introduced.
- Equity Sharing Scheme for persons who are 40 years and who want to purchase a house. To benefit the individuals must pay half of the purchase price and the bank will pay out the remaining amount. The Government will pay the interest for the period of the loan repayment.
- Extension on schemes on the reduction of stamp duty for first time buyers, second time buyers, vacant properties in the Urban Conservation Areas, purchase of properties in Gozo and reimbursements on expenses of works carried out for renovations.
- Extension of the free Tal-Linja Card scheme for youth having an age between 16 and 20. This measure is being modified further to accommodate full-time students from 14 years of age onward. Government contemplating also the inclusion of certain categories of persons with special needs in this scheme.
- Full refund of VAT on bicycles and electric bicycles extended for another year.
- Monetary incentive up to a maximum of €400 for the purchase of a motor-cycle, scooter or motor-assisted bicycles to be extended for another year.
- Grant scheme available to Local Councils and the Private Sector for the installation of bike-racks, to be extended for another year.
- Exemption from registration tax of electric motor vehicles or hybrid electric motor vehicles, to be extended for another year.
- Grant scheme for the scrappage of motor vehicles or the conversion of petrol motor vehicles to LPG, to be extended for another year.
- Proposed grant scheme for the restoration of fishing boats which are older than 20 years.
- Implementation of OECD’s BEPS programme, as well as the implementation of the Anti-Tax Avoidance Directive 1 (ATAD1, into force as from 1 January 2019) and the prospective implementation of the Anti-Tax Avoidance Directive 2 (ATAD 2) which contemplate (a) limitation on the deduction of interest, (b) the introduction of exit taxes and (c) the enforcement of GAARs (General Anti-Avoidance Rules), (d) the introduction of Controlled Foreign Company (CFC) rules.
- Implementation of the OECD Multi-lateral instrument and the EU Mandatory Disclosure Directive (DAC6).
- Enforcement of the current anti-money laundering and terrorism funding procedures.
- Plans by the Malta Development Bank to offer new schemes to assist SMEs and the financing of infrastructural projects.
- Launch of the programme Fintech Accelerator by the Malta Stock Exchange to assist start-ups in this sector meeting certain criteria and initial expenditure incurred.
- Malta Stock Exchange to work closely with operators of Blockchain technology and cryptocurrencies.
- Discussions about the Real Estate Investment Trusts (REITS) are nearing conclusion and planned to be implemented shortly.
- The setting up of the Malta Digital Innovation Authority to regulate and monitor consumer protection for companies setting up and operating in block chain technologies in Malta. The Malta Financial Services Authority will also set up a specialised unit in Fintech.
- Legal personality to certain aspects of blockchain technology, and at the same time preparing a document detailing the regulatory structure for Artificial Intelligence and the Internet of Things. Tech.mt will be the new agency promoting Malta as a hub for these technologies.
- Further exploration into the e-Sports sector.
- Malta Industrial Parks working closer with Private Sector in the form of PPP (Public Private Partnerships) to accommodate better small enterprises in industrial clusters.
- Scheme by Malta Enterprise to offer advisory services to business whose activity depends largely on the UK market, to assist them in the preparation of the impact of Brexit.
- The identification of new areas to replicate free zones such as those of Malta Free Port, to promote and grow the logistics sector.
- Seed Investment Scheme to assist new start-ups, to be extended.
- Start-up Visa Programme to help foreign start-ups kick-off their activities in Malta as a jurisdiction of choice.
- Extensive restoration and modernisation works at Rinella Film Studios and Facilities as well as expanding fiscal incentives to promote further the filming industry.
- The IIP (Individual Investment Program): The Minister has indicated that this program has one of the most extensive and rigorous due diligence processes. This, together with the strong criteria governing the IIP make it one of the most exclusive individual investment programs on the market. The IIP will be fortified and strengthened in the year to come to enable its competitiveness with other individual investment programs in other countries. A regulatory and enforcement unit will be introduced within Identity Malta to ensure that all rules and regulations governing the IIP are being followed. In addition, more online facilities will be introduced.
- As from 1 January 2019, the financial assistance provided to cancer patients in terms of the travel reimbursement for patients undergoing treatment cancer at Mater Dei will be extended to an accompanying relative on their commute from Gozo to Malta and vice versa. An additional allowance will be provided with respect to accommodation in Malta and in Gozo.
- As from 1 January 2019, a collective transport tax credit will be introduced. Private companies which organise collective transport for their Gozo resident employees from a common meeting point may avail themselves from a tax credit in this regard.
- As from 1 January 2019, a partial refund of €1.50 per day will be forwarded to Gozo resident civil servants who organise collective transport to and from work.
- Clarification to the Gozotan work subsidy. As from 1 January 2019, this ferry ticket refund will be provided to all Gozotan employees (civil servants or not) who commute to Malta for their employment.
- As from 1 January 2019, there will be an extension to the subsidy currently available to Gozotan students who are living in Malta subject to certain conditions. Details will be available at a later stage.
- In an attempt to encourage more companies to create employment opportunities in Gozo, the refund (to the employer) of 30% of an employee’s average wage (up to a maximum of € 6,000) for those employment contracts with a definite period of at least 3 years may also be availed of during 2019.
- From 2019, MATSEC and SEC examinations will be free of charge.
- The Government will embark on a two-year program to revive open spaces and pitches around the Islands.
- Voluntary Organisations which have revenue not exceeding €10,000 per annum will be exempt from taxation. Such voluntary organisations should be registered and should conform with the legislation and criteria stipulated by the Commissioner of Voluntary Organisations.
The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.