Businesses “abusing” of the current cost pressures to make up for what they lost during the COVID-19 pandemic have been called out by Minister for Finance and Employment Clyde Caruana, who warned that “predatory” price increases are “short-sighted”, forcing them to later contend with a decrease in sales.
The Minister was speaking on Friday morning (today) during a business breakfast hosted by Times of Malta, during which he fielded questions about the upcoming Government budget for 2023.
The wide-ranging discussion touched on many different aspects of the economic climate, centred on the Government’s response to the various crises currently battering the world economy.
Acknowledging that “the way things are evolving requires particular focus on what Government is spending”, the Minster however highlighted the state’s strong performance and response to the pandemic and the war in Ukraine.
“We have been able to give €825 million in wage subsidies over the course of the COVID-19 pandemic, and around €1 billion in energy subsidies over this year and the next – expenditure which is coming out of Government resources.”
This massive expenditure has led to renewed focus on maximising revenue streams by cracking down on tax dodgers and on limiting spending by identifying and trimming down resource waste.
On tax, Minister Caruana emphasised the importance that everyone pays tax, saying that interventions like those on wages and energy show that taxation benefits the whole country.
He said that a review of tax collection in 2019 left him “shocked”. During a record-breaking year of economic performance, he said, only between 35 and 40 per cent of businesses were generating a profit – on paper.
A quip by host Ivan Martin on whether Malta is simply a nation of tax dodgers, the Minister admitted that there is indeed “an element of that”.
Pressed on political parties own notorious tax arrears, and whether they should be leading by example, Minister Caruana said that negotiations between both major parties and the tax authorities have been taking place, with one agreement for the payment of the arrears by instalment already brought to a close.
Turning to sending cuts, the Minister said that a call, made earlier this year, for Government entities to find €200 million to cut, was already successful. He pointed out that the figure amounts to some 2.8 per cent of the annual discretionary spending, downplaying the significance by saying that “finding some €3 to cut out of €100 is not so difficult”. He promised that benefits and pensions were not up for “economising”, and added that the pension increase that will be unveiled in the upcoming Budget will be a significant one.
“We need to be ready for a marathon that lasts months or years, not for a sprint,” he said. “So we need to ascertain that Government spending is sustainable.”
Most importantly, for he Minister, is the debt-to-GDP ratio, which currently hovers around the 60 per cent mark. He said the Government’s goal is to maintain that level, with higher deficits fitting into the plan as long as economic growth outstrips the growth in the deficit.
He pointed out that the debt burden in Europe is creeping up to the 100 per cent mark, saying that a lower level allows authorities more room to manoeuvre.
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