Budget 2021 Highlights

The thrust of the 2021 Budget presented in Parliament by the Minister of Finance, focused on sustaining the Malta’s economy in the midst of the pandemic to soften its fallout through incentives, social justice and sustainability.

Fiscal and Economic Review

The Covid-19 pandemic struck at a time when the global economy started to exhibit signs of weakening and was particularly vulnerable to shocks from already emerging geopolitical tensions and trade disputes. The pandemic, and a series of containment measures adopted to restrict its spread, have impacted people’s lives and the functioning of economies. On the supply side, production chains were disrupted, workers were forced into quarantine, lockdowns were imposed in most nations, and industrial output declined.

On the demand side, domestic consumption decreased, and global trade in goods has contracted sharply as a result of lower foreign incomes and supply side bottlenecks. Trade in services has equally been affected and is likely to take longer to recover, especially in the tourism-related sectors. Investment has also been affected.

Whilst in recent years, Malta has been experiencing robust economic growth, throughout the first half of 2020, the pandemic and the containment measures imposed to contain the spread of the virus caused a contraction in economic activity of 6.1 per cent in nominal terms and 7.7 per cent in real terms.

The negative economic performance recorded in the first half of 2020 was mostly the result of a negative contribution from the domestic side of the economy, primarily attributable to drops in private consumption expenditure and gross fixed capital formation. Private consumption expenditure, registered a decline of 11.1 per cent reflecting the effects of lockdown measures with extensive business closures and consumers encouraged to remain indoors, along with a decline in the resident population as a result of repatriation of foreigners living in Malta.

In fact, during the first half of 2020, total Gross Value Added (GVA) in nominal terms experienced a decline of 5.2 per cent over the same period in 2019, reaching a total of €5.4 billion.

In August 2020, Malta’s 12-month moving average rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) stood at 1.1 per cent, from 1.6 per cent in September 2019. The annual inflation rate in August 2020 was 0.7 per cent.

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). It is to be noted, that the weight composition of the HICP and the RPI is different. During the twelve months till August 2020, the 12-month moving average rate of inflation as measured by the RPI showed a sustained gradual decline where it reached the rate of 1.0 per cent from 1.7 per cent recorded in September 2019.

In 2019, Malta continued to register improvements in life expectancy and also increases in inward migration. As a result, the population in Malta grew by 4.3 per cent when compared to 2018, totalling 514,564 in 2019, while the share of working age population improved marginally up to 68.1 per cent, and the share of people aged 65+ out of the total population stood at 18.5 per cent.

Net migration (immigration less emigration) increased by 19.0 per cent reaching a total of 20,343 persons by the end of 2019. The majority of the net-migration, around 61 per cent, was registered by third-country nationals (12,355), followed by other EU nationals (7,489 – around 37 per cent).

The onset of the pandemic is expected to have an effect on the net migration position for 2020. In fact, by end of May 2020, Malta had received a total of 10,278 requests for repatriation to other countries, although this figure might include people visiting Malta on a short-term basis.

The Labour Force Survey (LFS) data, for the second quarter of 2020, shows that the activity rates for persons aged 15-64 stood at 76.4 per cent, an increase of 0.9 percentage points when compared to the same three months of 2019. For females, activity rates increased by 0.5 percentage points whereas for males the increase registered was of 1.2 percentage points.

The closing down of the airport, education institutions and other non-essential retail, service and catering industries together with other restrictive measures resulted in a decline in the employment rate in the second quarter of this year when compared to the preceding quarter of the same year. Nevertheless, at 73.0 per cent, the employment rate was higher than that recorded in the second quarter of 2019.

In response, the Government announced further measures to encourage the retention of employees such as the extension of the Covid-19 Wage Supplement, introduced in March 2020, which provided employees with a basic wage to the employers to support the wages of their employees. It is estimated that at the end of July, 69,538 full-time and 10,038 part-time/casual employees had benefited from this measure.

As of January 2020, foreign employees accounted for nearly 28 per cent of full-time employees in Malta. The Administrative and Support Services sector employed nearly 15 per cent of all foreign workers, followed by the Accommodation and Food Services sector with employment shares of 12.7 per cent. Europeans are mostly employed in the Arts, Entertainment and Recreation sector while third country nationals (TCN) tend to be employed in the Administrative and Support Services sectors.

During the year 2019, the Maltese average household income continued to follow the same positive upward trend experienced during the last decade, converging steadily towards the EU27 average. Malta’s average household income as a proportion of the Euro Area (EA) average has increased by 15.6 percentage points since 2009 from 61.1 per cent in 2009 to 76.7 per cent in 2018. A similar convergence is also present when comparing to the EU average.

In 2019, the total value of imported goods totalled €7,415.6 million while exported goods amounted to €3,749.1 million. During 2019, imports increased by 18.1 per cent while exports expanded by 9.0 per cent compared to 2018. This resulted in a widening of the visible trade deficit by 29.1 per cent amounting to €3,666.5 million.

During the period January to July 2020, Malta’s total imports and exports decreased by €1,326 million and €205.6 million respectively. This resulted in the trade gap to decrease to €1,470.9 million. These declines in both exports and imports were mainly the result of the Covid-19 pandemic

During the first eight months of 2020, €950 million worth of stocks were issued by the Maltese Government on the primary market, with redeemed stocks amounting to €520.2 million. New issuances of corporate bonds decreased from €238 million as at August 2019 to €100 million as at August 2020. On the other hand, the amount of corporate bonds redemptions registered at €114.3 million, reflecting an increase of €24.3 million for the period ending August 2020 when compared to the same period of the previous year. No deductions were recorded for January to August 2020; this was also the case in the same period of 2019.

Furthermore, rollovers amounted to a total of €13.7 million for the first eight months of 2020, which dropped from €20.1 million recorded in the first eight months of 2019. In addition, buy-backs increased from €1.6 million as at August 2019 to €1.8 million as at August of 2020.

During January to August 2020, trading activity declined when compared to the same period in 2019. In fact, during January to August 2020, there was a decrease in turnover levels of 44.4 per cent, reaching €111.8 million. The number of deals also decreased to 3,212 from January to August 2020 in comparison to 5,374 for the same period of the previous year, reflecting a decrease of 40.2 per cent.

By the end of August 2020, the Malta Stock Exchange Share Index declined to 7,550.0 in comparison to 9,769.8 registered in the same period of 2019, showcasing a decrease of 22.7 per cent. Furthermore, market capitalisation in the equity market decreased from €4,807.4 million in August 2019 to €3,711.0 million in August 2020.

As at the end of August 2020, total market capitalisation decreased to €12,965 million from €13,097.2 million, representing a decline of €132.1 million when compared to the same period a year earlier. This decrease was underpinned mainly by reductions in the market capitalisation for equities, whilst corporate bonds, MGS and Treasury Bills market capitalisation all increased.

The general Government recorded a surplus of €67.1 million or 0.5 per cent of Gross Domestic Product (GDP) in 2019. The debt ratio maintained its declining trend, reaching 42.6 per cent of GDP in 2019. In view of the Covid-19 pandemic, the budgetary situation in the first eight months of the year was characterised by a significant decline in tax revenue which resulted in a deficit in the consolidated fund balance and in ESA terms during the first two quarters of 2020.

During the first eight months of 2020, recurrent revenues declined by €665.3 million, while total expenditure increased by €504.8 million. Consequently, the Government’s Consolidated Fund balance deteriorated by €1,170.1 million to a deficit of €1,086.2 million. The public sector borrowing requirement increased from €124.2 million to €1,399.8 million reflecting developments in the sinking fund contribution and direct loan repayments and to a lesser extent, equity acquisition

The general Government balance is estimated to have recorded a deficit of €728.8 million during the first half of 2020.

Budget Measures and Initiatives

The principal fiscal and financial measures in summary include:

  • Cost of living increase of €1.75 to be granted to all employees, pensioners, individuals dependent on social benefits and students receiving stipends which would be paid pro-rata.
  • During 2021, the vacation leave entitlement will increase by another day from 27 days to 28 days.
  • Income tax refund to increase to a new range between €45 and €95, with the highest value of refund to be distributed to those individuals who have the lowest income.
  • Distribution of a new scheme of spending vouchers valued at €100 to every individual who is 16 years old by the end of 2020. The vouchers may be redeemed at a value of €60 in hotels and restaurants whereas €40 may be redeemed at retail outlets and service providers
  • All families receiving Children’s Allowance will now receive an additional supplement as follows: Families earning less than €25,318 will receive €70 per child, whereas families earning more than €25,318 will receive €50 per child.
  • Increase in the qualifying thresholds for the In-Work Benefit Scheme. A couple who are both in employment will receive the benefit if their total income does not exceed €35,000. A couple where only one member is in employment, the benefit threshold increased to €26,000. For single parents who are in employment, the benefit threshold increased to €23,000.
  • From 1 January 2021, the Foster Care Allowance will increase by €520 to €5,720 per annum.
  • Parents who opt for local adoption of children, will be able to benefit from the Adoption Grant introduced in 2018. The grant will be capped at €1,000.
  • Supplementary increase in pensions of €3.25 per week, and when the Cost of Living increase is included, this will add up to €5 per week or €260 per annum.
  • Pensioners receiving annual pensions not exceeding €14,085 will be exempt from tax on those earned pensions.
  • Pensioners who apply the married tax rates for their personal self-assessment tax, will have an additional income of €3,600 which is exempt.
  • An increase reaching between €70 and €108 for those individuals qualifying for the Income Supplement. Additionally, individuals over 65 years and qualifying for the Income Supplement will receive an additional supplement of €150
  • Individuals over .63 years who do not qualify for any pension but had paid less than 5 years’ worth of social security contributions, will receive an annual contribution of €250. Individuals who paid more than 5 years’ worth of contributions, will receive an annual contribution of €350. In both cases, the increase amounts to €50 per annum.
  • Grants to elderly individuals who either reside in their private dwellings or reside in a private home for the elderly, will keep on being paid. An individual over 70 years will receive €300 whereas individuals over 80 years will receive €350 per annum.
  • For individuals who were born before 1962 and may not have enough contributions to qualify for the national pension, the calculation will now factor contributions paid when they were younger than 19 years old. That will help their cause to qualify for the pension.
  • Adjustment to the definition of the term “widower” or “widow” within the context of a civil union or cohabitation.
  • To increase by €200, the exempt threshold of service pensions considered for the assessment of the social security pension.
  • To increase the Carer at Home Scheme from €5,291 to €6,000 per annum.
  • Family members who are in retirement and take care of elderly members of their family, will now be eligible for the Carers’ Allowance, as long as the elderly member is not their spouse and they should be subject to periodical medical assessment.
  • New benefit for parents who need to resign from employment to take care of their severely disabled children over 16 years old. The value of the benefit is €300 under the name of Carer’s Grant.
  • Addressing further past injustices with certain former public sector employees and ex-Shipyard employees suffering from asbestosis.
  • Free Tal-Linja Card for individuals over 70 years old.
  • New Government Savings Bond for individuals who are retired and receiving a pension.
  • Increase in the tax exemption by €1,000 up to €3,000 for individuals who contribute towards the Third Pillar Pension Scheme and the Voluntary Occupational Pension Scheme.
  • Effective 20th October 2020, first time property buyers will be exempt from Duty on Documents and Transfers on the first €200,000 of the value of the property being acquired.
  • Effective 20th October 2020, individuals acquiring their property as their sole residence or individuals who inherited a property being used as their sole residence, will benefit from a reduced rate of Duty on Documents and Transfers of 3.5% also on the first €200,000 of the value of the property being acquired or inherited.
  • Promise of Sale agreements entered into for the acquisition of immovable property and registered before 31 March 2021 and contracted before 31 December 2021, will benefit from a reduced rate of Duty on Documents and Transfers of 1.5% on the first €400,000. The same conditions apply for a reduced rate of tax on property transfers down to 5%.
  • Donation of property from the parents to their children for the purpose of using it as their sole residence will be exempt from Duty on Documents and Transfers on the first €250,000, whereas the remaining value will be subject to a rate of Duty on Documents and Transfers of 3.5%.
  • Government to keep on promoting the Equity Release Scheme and Equity Sharing Scheme.
  • Between January and December 2021, cessation of rights on transfers of immovable property (sale of promise of sale agreements) will be subject to a final withholding tax of 15% on the value.
  • To extend Scheme for the transfer of shares and business properties within family businesses.
  • Authors and Co-authors earning income from royalties in connection with their publications, will be subject to a reduced final and withholding tax of 15%.
  • COVID Wage Supplement extended to March 2021.
  • Other incentives issued due to the COVID-19 pandemic such as tax deferrals, moratorium periods and Government guarantees for bank loans will remain in force and re-evaluated at the end of March 2021.
  • Increase in the VAT Exemption threshold to €30,000.
  • Assistance for businesses to increase their online sales.
  • A scheme to be launched by Malta Enterprise whereby companies employing less than 50 employees are able to claim up to 50% of their expenditure (with a maximum of €200,000) with respect to innovation projects. The scheme shall be open for a period of 1 year.
  • Extension and continuation of Malta Enterprise Schemes such as Micro Invest, Business Development and Continuity Scheme, Research & Development 2020 Scheme, the R&D Feasibility Study Scheme and the Business Start Scheme.
  • The creation of an e-Enforcement Unit to provide alternative dispute resolution channels between consumers and business owners to resolve consumer disputes and/or complaints.
  • The extension of the Employment Refund Scheme; Teleworking Scheme and schemes in the MICE sectors which were aimed at creating more employment opportunities in Gozo.
  • Grants to farmers and fishermen, equivalent to the amount paid in taxes on products sold at the Pitkali Market and the Old Fish Market. The grants will be linked to an investment in projects that reduce waste and lead to systems that control the volume of products put on the market according to consumer demand.
  • Introduction of traceability and modernized systems in the Pitkali market.
  • Funds allocated for a scheme to aid pig breeders.
  • Fund allocated to launch a scheme to assist fishermen in restoring their traditional vessels built before 2007.
  • Commencement of work on an animal cemetery.
  • The Malta Stock Exchange will issue Green Bonds to finance renewable energy projects and projects to reduce air pollution.
  • Several schemes will be retained to incentivise investment in renewable energy. These include installations of solar photovoltaic panels, heat pump water heaters, solar water heaters and renewable energy storage batteries as well as establishing the feed-in tariff for electricity generated from installations of solar photovoltaic panels.
  • Other schemes including the restorations of wells in residential properties, the scheme of changing of the appliances for vulnerable families and the reverse osmosis grant schemes will also be extended.
  • 130 “medium-fast” and “fast-charging” pillars for electric vehicles will be installed and made available to the general public.
  • Vehicle scrappage schemes applying to motor vehicles which have been in circulation for more than a decade and have been replaced with a less polluting vehicles will be replaced by a grant varying according to the level and category of the vehicle. The highest grant will amount to €7,000. The scheme will apply to private individuals, private companies and non-governmental organisations.
  • The non-payment of registration tax on the purchase of electric cars and the exemption from the payment of the annual road licence for a period of five years from the date of first registration for electric vehicles and plug-in electric vehicles will be extended for another year. This extension will also apply to the special rate applicable to residential homes of individuals having an electric vehicle and who charge their vehicles during the night.
  • Schemes where a grant is granted equivalent to a full refund of the VAT on bicycles and electronic bicycles, will be extended again. The same applies to the scheme to incentivize the purchase of motorcycles, scooters and bicycles assisted by an electric motor for a maximum of €400.
  • The grant for switching a vehicle to work with gas instead of petrol will now increase to €400, but to be eligible the CO2 emissions of the said vehicle must be reduced by 25%. This scheme will be extended to all passenger and freight transport vehicles, in this case the grant will be increased to a maximum amount of €800.
  • The renewal of the annual license for motorcycles with a cubic capacity between 125cc and 250cc, will decrease from €65 to €25.
  • All vehicles, including motorcycles, which are already registered with the Transport Authority, will be able to apply for the vehicle to be licensed for use on weekends and public and National Holidays only. In this case, they will benefit from a reduction of 35% of the annual license fee.
  • A grant of €10,000 will be awarded upon registration of a new accessible taxi vehicle for the wheelchair (WAT). This grant only applies when a vehicle with an internal combustion engine having at least 10 years from the year of its manufacture and holding a valid license for the last 5 years is recorded and scrapped in an authorized facility.
  • Individuals suffering from chronic and mental illness will still be handed out certain state provided medicines. The list of free medicines will be expanded to include other medicines which were not previously included.
  • Increased investment in palliative cancer care, osteoporosis treatments and mental illness.
  • Updates and improvements are planned with respect to Remote Patient Monitoring, setting up of a Clinic Management System and a Telemedicine Client Support Centre.
  • Increased investment in the provision of continued education for health care professionals.
  • The ever growing ageing population is being taken into consideration by increasing the number of bed availability in Mater Dei Hospital and other private hospitals, increasing the Centres for the elderly, improvements in the Home Help and Telecare and an upgrade to the ‘KartaAnzjan’ is also being planned.
  • A year free internet access to students who choose to further their studies to the Tertiary level of education.
  • Online courses will be available to parents and teachers to better guide students in their educational needs.
  • Increased investment in the Reading Recovery Program and in the setting up of Autism Units for Secondary schools.
  • Online learning will also be provided to adults and employees who wish to improve their careers.
  • A pilot project will be undertaken to enable secondary students to sit for their SEC examinations in the secondary school they attended.
  • Registered Voluntary Organisations will be exempt from tax on certain taxable profits as long as their taxable profits do not exceed Euro 50,000 per year.
  • Increased pressure on the need for Voluntary Organisations to be transparent with respect to any donations received and how these donations are spent.
  • An authority with respect to integrity in competitive sports in Malta will be set up with the aim to regulate and reduce corruption in competitive sports in Malta.
  • A new legislation with respect to equestrian activities in Malta will be published, also establishing the regulatory Authority on the subject.
  • Help will also be provided to individual artists and others who work in culture and the arts.
  • Increased investment in safeguarding the Maltese language, restoration of the Manoel Theatre and the Carnival Experience Project are also planned.
  • Good Governance is high on the agenda and a Committee has been set up to ensure that Malta complies with the recommendations put forward by the Venice Commission, GRECO and Moneyval.
  • The Malta Police Force has an action plan to improve its services within the community.
  • Increased investment in the setting up of police stations in certain localities, setting up of a Command and Control Room at the Police Headquarters, improvements to the forensic unit and infrastructural developments to correctional facilities. Programs that help young offenders and others that help victims of crime will also be invested in.
  • Increased investment in services provided by the Armed Forces of Malta and the Malta Civil Protection.
  • Setting up of a unit which will have the specific responsibility of working for the safe return of failed asylum seekers to their country of residence.
  • Incentives to employers to safeguard and sustain the work-life balance of their employees and to encourage male spouses to take an active part in their family life.
  • A centre to help the LGBTIQ community will also be set up.
  • A database system is being set up to keep a record of all individuals coming and going to and from Malta.
  • Revisions are envisaged to the Malta Residence by Investment and Malta Citizenship by Investment program.

The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.