Malta Budget 2020 Highlights
The thrust of the 2020 Budget presented in Parliament by the Minister of Finance, continued on the concept focusing on growing Malta’s economy and focussed on three pillars, namely rewarding taxpayers, social justice and sustainability.
Fiscal and Economic Review
Despite the global economic slowdown, Malta continues to register strong economic growth rates, albeit lower than in previous years. In the first half of 2019, the Maltese economy registered a real growth rate of 4.7 per cent. This positive economic performance was a result of a larger contribution from the domestic side underpinned by the growth in public consumption expenditure and gross fixed capital formation.
During the first half of 2019, total Gross Value Added (GVA) increased by 7.5 per cent over the same period in 2018, to reach €5.7 billion. The growth in GVA was attributable mostly to the Services sector which contributed 7.2 percentage points to growth, while the primary and secondary sectors together recorded a positive contribution to growth equivalent to 0.3 percentage points
In August 2019, Malta’s 12-month moving average rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) stood at 1.7 per cent, whereas the annual rate was 1.9 per cent during the same month. The official rate used to compute the Cost of Living Adjustment (COLA) is the 12-month moving average rate of inflation as measured by the Retail Price Index (RPI). To be noted that the weight composition of the HICP and the RPI is different. During the twelve months till August 2019, the 12-month moving average rate of inflation as measured by the RPI stood at 1.73 per cent
In 2018, the population in Malta totalled 493,559, up by 3.8 per cent when compared to 2017. Such an increase reflects improvements in life expectancy and also increases in inward migration. The share of people aged 65+ out of the total population stood at 18.7 per cent in 2018, whereas the share of the working age population, which had previously been declining, is slowly stabilising, reaching 67.6 per cent in 2018.
Net migration (immigration less emigration) increased by 16.5 per cent when compared to the previous year, reaching a total of 17,102 persons by the end of 2018. Third-country nationals accounted for the largest share of net-migrants at 9,209 followed by other EU nationals at 7,349.
During the first quarter of 2019, the number of employed persons (aged 15-64) increased by around 13,000 reaching an employment rate of 72.2 per cent out of the total working age population. This remains higher than the average rate recorded across the EU. The highest employment rates observed are for people aged between 25 and 54, where out of every 100 individuals in that age bracket, 86.7 were in employment. Significant improvements have been recorded in female employment rates, nevertheless they are still lower than those for males by almost 20 percentage points. The gender gap is observed to increase with age, ranging from a narrow gap of 1.4 percentage points for the 15-24 age bracket to 34 percentage points difference for those aged between 55 and 64 years, thus supporting the idea there is a cohort effect underway conditioning trends in female participation in the labour market.
In 2018, the total value of imported goods amounted to €6,265.2 million while exports of goods totalled €3,331.2 million. In percentage terms, imports increased by 2.3 per cent while exports decreased by 10.2 per cent. The current account surplus expressed as a percentage of Gross Domestic Product (GDP) averaged 7.3 per cent over the past four years (Chart 3.3). The balance in 2018 reached 11.3 per cent of GDP. In the first half of 2019, the surplus expressed as a percentage of GDP stood at 8.0 per cent. Malta’s surplus is supported by a strong positive external trade balance.
Unemployment rates have continued to decline even further reaching 3.4 per cent at the end of the second quarter of 2019, 0.4 percentage points lower than the corresponding period in 2018.
During January-August 2019, the Maltese Government issued €180.0 million worth of stocks on the primary market, with redeemed stocks totalling up to €175.9 million. Newly-issued corporate bonds increased from €67.0 million as at August 2018 to €238.0 million as at August of this year. Redemption of corporate bonds registered at €90.0 million, that is, an increase of €34.6 million for the period ending August 2019 when compared to the same period a year earlier.
The general Government recorded a surplus of €235.6 million or 1.9 per cent of Gross Domestic Product (GDP) in 2018. On a cash basis, in 2018, the central Government’s Consolidated Fund registered a deficit of €70.2 million. The debt ratio maintained its declining trend, reaching 45.8 per cent of GDP in 2018.
In 2018, Malta reported headline and structural budget surpluses, in line with the provisions of the Stability and Growth Pact. In 2018, the general Government surplus stood at 1.9 per cent of GDP, exceeding the surplus target of 0.5 per cent of GDP planned in 2018 Budget, which was then subsequently revised to 1.1 per cent of GDP in the 2018 Update of the Stability Programme.
The fiscal and financial measures in summary include:
The cost of living allowance (COLA) has increased to €3.49 per week as from next year. This will be benefitted from by employees, pensioners as well as those on social benefits. Stipends will also be increased pro-rata.
In 2020, an additional one-time bonus of €15, in case of individuals living alone, or €35, if the family consists of more than one person, shall be given. This will be financed by the Government.
As from 2020, another day of vacation leave shall be added to each employees’ entitlement. Therefore, as from next year, each employee shall be entitled to 216 hours of vacation leave.
An income tax refund ranging between €40 and €68, depending on the salary earned shall be given. Those who earn a minimum wage and do not pay tax will also benefit from this refund.
The first 100 hours of overtime per year of those employees whose basic pay does not exceed €20,000 and do not hold a managerial position shall be taxed at the flat rate of 15% in 2020.
The scheme whereby the stamp duty to be paid on the transfer of a family business shall be 1.5% instead of 2% or 5%, as may be applicable, has been extended for another year.
A VAT exemption for educational services, research, vocational training, including distance learning or education in other recognized educational institutions.
As from January 2020, VAT/PE registrations and de-registrations will be able to be submitted online with instant validation.
Married couples will be able to submit their tax returns and be assessed separately.
Tax refunds to be paid within 6 months rather than 1 year.
Pensions have been increased by €7 per week inclusive of COLA.
Threshold for non-taxable income from pensions has been increased to €13,798 per year. Furthermore, those receiving a single pension shall be exempt from paying tax on €15,798, an increase of €2,000 from previous years.
Members of the Police Force, the Armed Force of Malta, the Civil Protection Services and Prison who have started working elsewhere will be able to have their contributory pension evaluated and have their years of service taken into consideration for the purpose of their pension. In this manner, they will be able to benefit from a higher pension.
Increase in pensions for members of the civil service and the public sector who reached pensionable age between 2016 and 2018 but continued working elsewhere without receiving a pension for at least a year.
The amount which is to be ignored for the purpose of assessment of social security pensions has been increased to €2,666.
Increase in Disability Pension to €161.40 per week, making this equivalent to the national minimum wage as at January 2020.
Invalidity pensions shall also increase to the equivalent of the national minimum wage.
€1000 financial assistance to disabled people in order for them to purchase special equipment.
Supplementary Assistance given to those aged 65 or over who are at the risk of poverty has been increased to €150 per year.
Elderly citizens aged 75 years or over and who are still living in their home or with relatives benefit from €300 supplement however those being 80 years or older shall be given €350. Such supplement shall also be given to those paying to stay in a private elderly home.
Tal-Linja card to make use of free public transport for those over 75 years of age.
As from 1st January 2020, a bonus of €300 for each childbirth and/or adoption in a family shall be provided.
Non-contributory sickness assistance – As from January 2020, the mechanism by which the individual weekly earnings is calculated will be revised in a way that the threshold will be based on the minimum national pension and an additional sum of Euro 22 for single individuals and Euro 30 for married individuals increase.
Sickness assistance in the case of a deceased spouse: An individual already benefitting from sickness assistance will no longer be required to reapply for this assistance upon the demise of the other spouse.
Disability Assistance – As from January 2020, one of the disability assistances will not be taken into consideration when calculating the means test.
A help line will be introduced as a means of assistance for people with disabilities, their relatives and also to report any misdoings.
Professional training will be introduced to employees working directly with people with disabilities.
Parents of children facing rare illnesses who terminate their employment to be able to care for their children will be accredited with the social security contributions they failed to pay (up to an 8-year period).
As from January 202, fibromyalgia and ME will be included in the list of conditions which may call for social security assistance. Individuals who are unemployed and suffering from these conditions may now apply for assistance with respect their medical bills (after all conditions have been satisfied).
Disability assistance will also be available to people (upon attaining the age of 16) with impaired hearing and speech.
Sickness benefits have been extended to individuals who suffer from illnesses which require medical treatment in several intervals such as cancer treatment.
Widows/widowers having children under 18 years of age will be entitled to a revised weekly allowance of Euro 10 whether the widow/widower is in employment or not.
A fund of Euro 13 million will be allocated to compensate individuals who suffered injustices in the past.
As in the previous year, government bonds will be issued to pensioners as an alternative way to invest their savings
Fiscal incentives will be provided to individuals who invest their savings in private pension schemes and to employers who encourage such investment. The Voluntary Occupational Investment Scheme shall be running and available to individuals and companies ready to invest in these pension schemes.
Less bureaucratic burden will be imposed on tax payers with respect to registration, deregistration and cancellation of VAT and Private Employer Numbers. These will be submitted online.
Less bureaucratic burden will be imposed on pensioners by eliminating the provisional tax payments settled by the latter tax payers. Any provisional tax payments will be deducted from their pension,
Married individuals may submit separate tax returns. Therefore, both spouses may be subject to tax separately.
Procedures are being reviewed and analysed to eliminate the preparation and submission of the income tax return, whereby the tax payer confirms or otherwise a provisional tax statement issued with the Income Tax Department.
Procedures are being set in place to pay out any tax refunds before within a 6 month period.
VAT will not be levied on the following provision of educational services- educational research, vocational training and distance learning.
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 2020.
Extension of the free Tal-Linja Card scheme for young individuals having an age between 14 and 20 years of age. This measure is also being extended to a certain section of the elderly.
Extension of current existing schemes in connection with reduced duty on acquisition of immovable property, namely for first-time buyers, second-time buyers, property in Urban Conservation Areas, property in Gozo and restoration works.
With effect from contracts dated 15 October 2019, first-time buyers will be exempt from duty on acquisition of immovable property on the first €175,000 rather than €150,000.
With effect from contracts dated 15 October 2019, buyers (not necessarily first-time) who inherit immovable property, which is their sole residence, will benefit from a reduced duty rate of 3.5% on the first €175,000 rather than €150,000.
Assistance to young individuals who are not able to finance the 10% front-finance against a bank loan. In agreement with Banks, the Government will finance up to €17,500 and will be allowed to be repaid over 15 years with the interest payable by the Government.
As from 1 January 2020, there will be an increase in the means test for the subsidy scheme for affordable housing in cases where the rent payable exceeds 25% of the gross income. The increases range from €14,500 to €19,000 for a single individual whereas it will increase from €28,600 to €32,000 for a married couple with two children.
The launch of a new Authority to regulate Building and Construction activities to safeguard, safety, responsibilities and transparency.
Extension of the scheme “Irrestawra Darek” for properties in Urban Conservation Area.
Enlargement of the Urban Development Fund to be utilised by Local Councils and other Organisations for capital projects.
As from 1 January 2020, the first €100,000 profit made on cessation of immovable property rights or any other similar right, will be subject to a final and withholding tax of 15%. Any profits in excess of €100,000 will be taxed at the normal rates of 35%.
New on-line system to facilitate the registration process of immovable property in Malta.
Special electricity rate of €0.1298 per unit for residential units who charge their electric cars.
Launch of the Container Recycling Scheme as from 1 January 2020 and full implementation by the end of the year.
Plastic bags and other plastic disposables will be prohibited as from 1 January 2021 and will be completely abolished as from 1 January 2022.
Financing of up to 50% of the capital expenditure (capped at €3,000) incurred for setting up of a Green Corner by Grocery Shops and other Similar Retail outlets.
Malta Enterprise to provide financial assistance of up to €200,000 for the construction industry to replace polluting machinery with new cleaner technologies. Any old machinery has to be scrapped. Additional new environmentally friendly machinery is also eligible.
Grant representing 25% of the cost of acquisition of batteries to store energy for persons who already invested in solar panels and their feed-in-tariff contracts expired.
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.
Extension of the Free School Transport for children scheme.
A maximum grant of €850 to young individuals who would like to learn a foreign language outside of Malta.
Setting up of Artificial Intelligence (AI) hub as well as other measures to launch the AI strategy plan. Other measures a nationwide educational campaign, provision of student grants and pilot projects within the public service.
Preparation of legislative structure to explore a National Space Strategy to encourage foreign companies to invest in this new innovative sector.
New incentives to be launched to promote Video Game Development and Esports.
Extension of the MicroInvest Scheme; Business Start and Startup Finance Schemes and services offered by the Start Up Malta (SUM) Foundation.
Launch of a pilot project to set up the concept of Green Infrastructures in Industrial Zones.
Plans by the Malta Development Bank to coo-operate with additional Banks in order for it to be in a position to cater for a larger share of the market in assisting SMEs and the financing of infrastructural projects.
Grants to be provided to employers engaged in employment of individuals with special needs to help these employees integrate with the staff complement.
Malta Stock Exchange to promote the listing of bonds for the financing of Green investment initiatives in particular those safeguarding our environment, sustainable resources, and clean energy.
Companies operating in the agricultural sector to continue receiving funds promoting agricultural research and development as well as investment in new energy efficient machinery.
Companies operating in the agricultural sector to be able to benefit from the Innovation Aid for SMEs financing the salary of an individual expert in research, development and innovation. Scheme may also be extended to other advisory services.
Launching a Business Portal working with AI technology to reduce bureaucracy for businesses.
Improvement in the Gozo Business Scheme consisting of tax credits for start-up business in Gozo.
Incentives for those companies incurring relocation expenses to relocate their business to Gozo and other special incentives for those businesses relocating teleworking and back office activities to Gozo.
Enforcement of the Asset Recovery Bureau to speed up the process whereby assets recovered from criminal activities are passed on to the Government of Malta.
Consolidate the preparation for Brexit, whether with a deal or no deal..
The acquisition of valuable goods such as immovable property, yachts, motor vehicles, works of art, jewellery and other precious stones of a value in excess of €10,000, will not be possible to be paid in cash anymore.
Government’s intention to extend the Individual Investor Programme.
Secondment of personnel to assist in Regional Councils’ work.
Assistance to NGOs who wish to appeal against development applications in front of the Planning Authority, capped up to €1,000 per case.
Investment in the country’s expertise to negotiate the best financial package for the European Union for the next 7 years.
The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.