Malta Budget Highlights 2018
The thrust of the 2018 Budget presented in Parliament by the Minister of Finance, focused on gearing up for future challenges as well distribution of prosperity and achieving social justice to ensure that everybody improves in one’s standard of living.
Fiscal and Economic Review
The Maltese economy continued to grow strongly in the first half of 2017. Indeed, the Maltese economy grew at a nominal rate of 8.3 per cent, or a real rate of 6.3 per cent outperforming the average growth recorded in the EU during the same period. This performance also compares favourably to that registered in the same period of 2016. In fact, during the first half of 2017, economic growth in real terms was 0.5 percentage points higher when compared to the first half of 2016. Household consumption increased by 3.8 per cent in the first half of 2016, which was 0.1 percentage points higher than the growth registered in the same period of 2015. Growth in domestic consumption continued to be supported by strong and positive developments in the labour market.
From the expenditure side, the positive economic performance in the first half of 2017 was mostly the result of a larger contribution from the external side of the economy, as growth in exports was coupled by a decline in imports. Specifically, while in the first half of 2016 exports increased by 2.0 per cent and imports increased by 3.2 per cent, in the first half of 2017 exports increased by 2.6 per cent and imports declined by 4.0 per cent. The higher export growth corresponds to a stronger external demand, driven by stronger world Gross Domestic Product (GDP) and the increased competitiveness of the Maltese economy, whilst the decline in imports is explained through the decline in investment, which had a high import content.
During the period under review, gross operating surplus and mixed income increased by €234.3 million or 10.6 per cent during the first half of 2017 compared to an increase of 8.0 per cent recorded during the same comparable period last year. This positive development meant that the ratio of gross operating surplus to GDP at market prices continued on its upward trajectory, reaching 47.0 per cent in the first half of 2017.
At the end of March 2017, the labour supply stood at 201,876, reflecting an increase of 5,007 or 2.5 per cent over March 2016. Meanwhile, total employment increased by 6,279 or 3.4 per cent to reach 193,450 at the end of the quarter. In the first quarter of 2017, the share of full-time employment amounted to 85.7 per cent, registering an increase of 5,582 or 3.5 per cent over the corresponding period of the previous year. Meanwhile, part-time employment registered an increase of 639 or 2.9 per cent during the same period under review.
The employment rate (defined as the number of persons engaged in employment as a percentage of the population of working-age) stood at 65.9 per cent; following an increase of 1.5 percentage points over the first quarter of 2017. During the first quarter of 2017, the number of unemployed persons stood at 8,426, following a decrease of 1,272 when compared to the first quarter a year earlier. Consequently, the unemployment rate (defined as unemployed persons as a percentage of the labour force) decreased by 0.7 percentage points to 4.2 per cent when compared to the 4.9 per cent registered in the same period a year earlier.
In the industrial sector growth was experienced in the primary, secondary and the tertiary sectors. Indeed, the industrial sector maintained an encouraging growth rate in its gross GVA of 5.7 per cent, with mining, quarrying and utilities registering double digit growth rates.
Between January and July 2017, all tourism indicators continued to show a positive performance. The number of inbound tourists and nights spent in Malta continued to expand over the comparable period of 2016, along with tourist expenditure and employment. The same applies for the cruise passenger industry, which recorded a positive performance over the period under review. In the first seven months of the year, inbound tourism increased by a significant 17.6 per cent when compared to the same period last year, reaching 1,241,248 persons. Nights spent by inbound tourists increased by around 11.0 per cent, and expenditure of inbound tourists increased by 13.9 per cent.
Average full-time employment in the accommodation and food services activities increased by almost 800 jobs in the first quarter of the year. In the first two quarters of 2017, cruise passenger arrivals, excluding the embarkations and the Maltese cruise passenger arrivals, increased by 12.2 per cent over the corresponding period of 2016. During the period January to July 2017, tourism spending increased by 13.9 per cent, from €886.0 million to €1,009.5 million.
Throughout the first eight months of the year, the MFSA issued a significant number of new licences. In total, 11 investment services licences were issued, leading to 161 licences by the end of August 2017. The MFSA also issued 83 new Collective Investment Scheme (CIS) licences, increasing the total number of CIS licences to 1,414. Financial institutions were issued 2 licences, increasing the total as at end of August to 44 units.
Concerning insurance companies, 3 licences were issued, bringing the total to 63 insurance companies. Moreover, trustees increased by 8, to an aggregate of 165 trustees. With regards to retirement schemes, 4 schemes were licensed, with the total increasing to 49 schemes.
In addition, during the period under review, 3,304 companies and partnerships were registered with the Registry of Companies.
As at the end of June 2017, there were 282 remote gaming companies in Malta, which collectively held 558 licences. This implies that the number of registered remote gaming licences increased by almost 14 per cent over the corresponding period in 2016. Data on the land-based sector of the MGA shows that by the end of this period, the number of casinos in Malta stood at 4, while the number of bingo halls increased by a unit to 5 halls. In April 2017, the MGA published the Skill Games Regulations (S.L. 438.11) which regulate the online skill games sector, which resulted in the issue of 15 controlled skill games companies.
Between October 2016 and January 2017, Malta’s monthly year-on-year harmonised inflation rate, increased from 0.5 per cent to 1.4 per cent. However, it subsequently declined to 1.0 per cent by June 2017 before reaching the rate of 1.2 per cent in August 2017. The 12-month moving average inflation rate stood at 1.1 per cent in August 2017 the same as was recorded in August 2016. The Labour Force Survey (LFS) figures show that in the first quarter of 2017, the average annual basic salary for employees was 5.7 per cent higher than the level recorded a year earlier. Malta’s RPI 12-month moving average inflation rate in August 2017 stood at 1.2 per cent.
For the period January to July 2017, Malta’s total exports declined by 32.1 per cent over the corresponding period in 2016, reaching a value of €1,555.9 million.
During the period January to July 2017, imports of goods decreased by 12.0 per cent to reach a value of €3,636.5 million. Total imports net of fuel declined by 22.5 per cent throughout the first seven months of 2017 from €3,223.9 million to €2,498.4 million.
Malta’s current account has been recording a surplus since 2012, contingent mainly on structural developments, improved competitiveness of the Maltese economy from a supply perspective, developments in international capital flows, and supported by a demand-induced effect following the gradual global economic recovery from the financial crisis. In fact, Malta’s current account surplus averaged at 4.9 per cent of GDP over the past 5 years (2012 to 2016).
In 2016, the general Government recorded a surplus of 1.0 per cent of Gross Domestic Product (GDP). During the eight months to August 2017, the difference between central Government recurrent revenue and total expenditure improved to €31.1 million - an improvement of €110.24 million when compared to the same period in the previous year. This improvement was mainly the result of higher recurrent revenue resulting from higher tax revenues reflecting in particular the impact of stronger economic growth, as well as further efficiency in revenue collection. Meanwhile, the public sector borrowing requirement decreased from €383.7 million to €60.3 million reflecting developments in the sinking fund contribution and direct loan repayment.
After the budget balance for Malta swung into surplus in 2016, the European Commission’s Spring Forecast expects the balance to remain positive but to moderate to 0.5 per cent of GDP for 2017. In 2018, under a no-policy-change assumption, the budget surplus is projected to improve further to 0.8 per cent of GDP. The government debt-to-GDP ratio, which fell below the 60.0 per cent threshold in 2016, is forecast to decline further to 55.8 per cent in 2017 and 52.5 per cent in 2018.
Fiscal and Financial Measures
The fiscal and financial measures in summary include:
Cost of living increase of €1.75 for all employees and students (on a pro-rata basis).
Increase of one day of leave to the current standard entitlement as a compensation to public holidays falling on a week-end.
Increase in minimum wage at €3 per week during the second year of employment and a further €3 per week during the third year of employment. Employees earning more than the basic minimum wage are also entitled to corresponding pro-rata increases.
One time refund of tax ranging between €40 and €68 (according to the gross earnings) for tax payers earning less than €60,000 a year.
Increase in contributory and non-contributory pensions at €2 per week.
Increase the ceiling of non-taxable pensions to €13,200.
Increase of €200 in the Service Pensions.
Individuals over 75 years of age and living in their own residence, will receive a grant of €300 for another year.
Social Security Contributions paid between retirement age and 65 years will now contribute towards pension calculations receivable by that individual.
Pensioners who are in part-time employment or self-employment after the retirement age and having to pay Social Security Contributions until 65 years of age, may opt to pay these contributions at 15% of the basic pay or weekly basic equivalent.
As long as bank interest rates remain low, a new call for Government Bonds will be offered to individuals aged 62 years and over.
Ex-gratia payment to owners who registered a new vehicle in 2007.
Exempt threshold under article 11 (Small Undertakings Scheme) of the VAT Act for taxable services, will increase from €14,000 to €20,000.
Alignment of excise tax on certain steel rods and bars falling under certain HS codes to eliminate unfair competition on certain importation.
Increase in penalties concerning tax evasion both for Court Judgements and out-of-Court settlements.
Increase in the highest rate of In-work Benefit from €350 to €450 per child whereas the lowest rate will increase from €52 to €75 per child.
Reduction of the tapering process in unemployment social benefit from two years to one year.
Employees registered within the Community Worker Scheme will have an increase in pay by €200 a month.
Increase of additional allowance of €8.15 per week for every additional family member in the event of a married individual losing any social benefit entitlement arising from in-house care of an elderly member with high dependence.
Refund up to €10,000 to couples engaging into the process of adopting a child. This measure is also applicable to those who are currently in the process.
Individuals under 21 years of age and who are orphans, may still benefit from the special allowance for orphans even if these individuals are engaged into employment.
Foster Care Allowance to increase from €70 to €100 a week.
Widows and widowers receiving contributory pension, will now also be eligible for sickness benefits.
Alimony payments will no longer be considered as income for the means test in connection with eligibility to free medicine.
Drug Addicts Allowance will increase from €30 to €40 per week.
Widening of thresholds for more individuals to qualify for rent subsidies, whereas individuals at 65 years of age and over would be able to qualify for specially set thresholds.
Scheme for property owners contracting themselves to rent out their properties to the Housing Authority for 10 years, will be renewed for another year.
Housing Authority will be offering a scheme for financial assistance of up to €25,000 for the restoration of every residential unit which is currently vacant and in dilapidated state. The scheme is open for the first 100 residential units and the restoration process needs to be ready within 6 months from approval of assistance.
Elderly individuals residing in St. Vincent de Paule Residence or other Old People’s Homes, who vacate a former residential unit rented from the Housing Authority, would benefit from a reduction of 20% or 40% in the pension contribution to the Government for residing in the Old People’s Home. So, through this measure, the pension returned to the Government would tally to 60% or 40%, depending on the relevant Old People’s Home.
Agreement with Bank of Valletta to subsidise 300 prospective applicants for social loans.
Proposed White Paper to regulate the rental market.
The exemption of stamp duty on the first €150,000 by first-time buyers will be extended for another year.
With effect from 10 October 2017, people who sell their residential home to purchase another residential property and who do not possess any other property, will benefit from a reduction in stamp duty of up to €3,000. This reduction will increase to €5,000 in the case of a disabled person.
Expenditure on restoration of properties within Urban Conservation Areas and other scheduled buildings (first and second grade) will benefit from a refund of those expenses.
Buyers who acquire immovable property in Urban Conservation Areas will benefit from a reduction in stamp duty from 5% to 2.5%.
Buyers who would like to acquire residence in Gozo will continue to benefit from a reduced rate of stamp duty from 5% to 2%, as this has been extended for another year.
A working group shall be set-up to make recommendations on Equity Release Facilities. This facility will grant pensioners who are owners of their residential homes to benefit from receiving a sum of money, either in monthly payments or in a lump sum and monthly payments based on the value of their home.
A scheme will be introduced on the redemption of ground rent.
Free public transport for youths between 16 and 20 years of age.
With effect from scholastic year 2018/2019, pupils from Independent Schools and Church schools will benefit from free school transport.
The VAT refund scheme on bicycles and pedelec bicycles will be extended for another year. This will also be extended to companies who rent out these bicycles.
Maximum incentive of €400 on purchasing motorcycles, scooters and electric-assist bikes. For electric-assist bikes, there is also the exemption from VAT.
VAT on the hire of bicycles will be reduced from 18% to 7%.
The scheme whereby grants are given to Local Councils and private companies who install bicycle racks will be extended for another year.
Exemption of registration tax on electric cars, hybrid motor vehicles and other similar vehicles which run on batteries of at least 80km. These vehicles will not pay a road licence for five years from date of registration.
Commercial companies can benefit up to a maximum of €200,000 if they qualify according to State Aid regulations.
Next year the Government will be granting new incentives on the purchasing and installation of equipment to charge electric vehicles.
The car scrappage scheme as well as the grant to convert motor vehicles to run on gas instead of petrol will be extended for another year.
A maximum grant of €10,000 will be given on the purchase of Wheelchair Accessible Taxi (WAT).
The pilot project of organic waste will now be extended to all localities in Malta and Gozo.
The Government will be discussing with the private sector how the scheme of glass and plastic bottles will operate when these are returned or deposited so that the consumer will receive a refund.
Taking advantage of new opportunities in the wake of Brexit – A working group has been set up to explore ways to attract companies withdrawing from the UK due to Brexit. New financial structures are being analysed with the intention to attract new investment to Malta.
Block chain Technology – a Taskforce has been set up to evaluate the implementation of block chain as a national strategy. Incentives to start-ups, undertaking this type of technology will also be issued.
VAT Grouping in the Financial Services and Gaming sectors – Independent entities, which are financially, economically and organisationally related, having a fixed place of establishment in Malta may collectively register with the VAT Department as one taxable person. Any revenue and expenditure incurred between the companies under one registered taxable person will be considered out of the scope of VAT.
Specialised Education in aviation, advanced printing and nursing will be introduced.
The Micro Invest Scheme assistance threshold will be increased from €30,000 to €50,000 with respect to Malta based entities and increased to €70,000 with respect to entities established in Gozo. In addition, the Micro Invest assistance threshold will also increase to €70,000 for self-employed women.
The Micro Invest Scheme will be extended to entities which employ not more than 50 full time workers.
The Malta Citizenship by Investment Programme will be renewed.
Financial Incentives directed to increase employment within the private sector established in Gozo – 30% of the wage of new recruits with a 3 year employment contract will be refunded up to a maximum of €6,000.
Incentives directed to tourism sector established in Gozo will be introduced to better the quality of their services.
Bureaucracy will be attempted to be reduced by a further 30%.
Introducing offsetting of company payments to the Government with receipts due from the Government. This is beneficial for companies as far as cash flow is concerned.
Online submission of Social Security and VAT forms will be extended to entities employing between 10 workers or more.
Payment of SEC and MATSEC examination fees will decrease by 50% with the Government absorbing the rest of the expenses in 2018. These fees are set to be phased out as of 2019.
Subject to certain conditions, individuals under the age of 40 years following a Masters or Ph.D. course will be exempt from income tax for a maximum of two years after completing their studies in the form of tax credits. Those opting for a part-time course will be granted the benefit pro rata. The benefit is applicable from academic year 2017/2018.
Setting up of the Commercial Sports Facilities Commission aimed at assisting sports organisations to invest in and market their facilities.
Proposals to amend current employment laws shall be submitted to Parliament and are set to be implemented throughout the course of next year.
Various legislative reforms to be discussed throughout the year.
A national strategy related to voluntary work including a consultation with voluntary organisations will be launched.
The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.