The Government's Budget for 2003 is being touted as the "Election Budget", the last occasion in the hands of the Nationalist Government to positively influence the electorate though specific measures before the next general election is called sometime in 2003.

It could also be pen-ultimate budget before Malta becomes a full member of the European Union. Indeed in the last few years Malta's drive towards membership has been reflected in the Budget, with substantial sums of money relocated to the adoption of EU legislation and the implementation of the necessary reforms to make Malta ready to join the 15-nation bloc.

Within this context, the reduction of the structural deficit in the public finances, popularly known as 'il-hofra' (the hole), and Malta's alignment with the European Union's body of legislation in view of potential membership, remain the two most important issues.

Structural Deficit

Possible measures to reduce the structural deficit would include an increase in taxation, more efficient tax collection, elimination of state subsidies on certain products and services, a clampdown on abuses of social benefits, and the privatisation of public corporations or the sale of the government's shareholding in other companies. All of these, to varying degrees, where tackled in the last four Budgets of the Nationalist government. To reduce the deficit, which passed the Lm1 billion mark last year, is to increase the government's revenue and decrease public expenditure. Though the government succeeded in increasing its revenue, it definitely lost the battle to contain its expenses. The sale of government assets, such as the partial privatisation of the Malta International Airport, did not leave a significant mark.
Income Tax

Fiscal policies will continue to stress on the importance of paying up due taxes. The government should do its utmost to collect taxes, fines and other contributions without increasing the amount of taxation. Imposing more taxes on the middle-class sector, just like what the government did for the 2000, 2001and 2002 budgets, is not the ideal solution since it reduces the spending power a section of society that spends a lot of its income. This has been reflected in reduced business for retailers. This year's budget would re-adjust tax brackets to leave more spending power in the hands of the taxpayer. Increased tax compliance would balance this out. This is also the call of several constituted bodies, especially the Federation of Industry.

Benchmarking for professionals is the way forward but the government would be threading on dangerous grounds. All benchmarking exercises must be done in full consultation of the bodies representing these professionals.

VAT The Value Added Tax rate should go up for luxury items such as luxury cars, yachts, jewellery and travel. On the other hand, items that are necessary for everyday life would have a reduced VAT rate.

Social Benefits

The screening of all beneficiaries of social benefits should be continued. Abusers will be prosecuted and wherever possible social benefits are to be made available only to particular social and income groups. A reform of the national pensions system is a no longer an option but a must. This must be launched as soon as possible, in full consultation with the social partners.

Environment The protection of the environment is no longer a matter of health but also an economic issue. The polluter pays principle should be enforced and the waste management strategy implemented immediately. Environmental policies, however, should not translate into increased tariffs or new tariffs for facilities that today are free.

nstead, funds for implementing environmental policies should be raised from fines. The licenses on luxury cars and cars which have a large engine should go up to encourage the use of smaller more economical cars. The license on motorcycles should be lowered for the same reason. This should finance the construction of more public parking facilities.

Public Sector

The amount of employees in the Public Sector will be gradually decreased in a staggered way over a number of years. Employees who are reluctant to retrain will be considered as redundant and offered an early-retirement package. Production in all departments has to increase. The reform in the Public Sector will be accelerated and the power of Information and Communications Technologies will be harnessed to this end. The concept of e-government should be implemented. The Information Technology industry in Malta is given special incentives to flourish and catapult Malta among the most advanced nations of the world, with the potential creation of thousands of new jobs and the creation of an indigenous industry servicing other Mediterranean and Middle Eastern countries.

Job creation

To boost the creation of jobs, in the light of possible redundancies as a result of the restructuring process, more incentives will be given to the local industry. Small and medium-sized enterprises will be given much needed assistance. A new marketing strategy will be drawn to attract foreign investment that is seeking a foothold to penetrate the European market. Malta's position in the centre of the Mediterranean should be exploited to the full with the hub concept, with Malta providing key services to these companies operating across the three continents of Europe, Africa and Asia. There has been little new foreign investment in Malta, as a result in part of Malta's indecisiveness on the EU membership issue. However the right incentive packages should attract such investment, especially in the Information Technology Sector.