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Prime Minister Dr Lawrence Gonzi has today Monday, 15 October 2007, presented to Parliament his fourth budget. This is the last budget before the next General Elections.

A summary of the Consolidated Fund as presented in the budget statement is shown in the Table below:

	2007		2008
	Budget	Revised	Budget
	Lm ‘000	Lm ‘000	Lm ‘000

Revenue	992,929	977,211	1,034,964
Recurrent Expenditure	879,558	894,886	923,357
Capital Expenditure	167,835	130,775	140,983

Structural Deficit	54,464	48,450	29,376

Deficit as a % of GDP	2.52	2.11	1.21

The revised deficit for 2007 is approximately 2.11% of GDP. It is expected that the deficit is reduced in 2008 by just over Lm 19 million equivalent to 1.21% of expected GDP for next year.

Public Debt for 2007 is expected to reach Lm 1,443.4 million and expected to increase to Lm 1,463.1 million, Lm 1,469.7 million and Lm 1,446.2 million in 2008, 2009 and 2010 respectively. As a percentage of GDP, Public Debt is projected to be reduced from 62.87% in 2007 to 53.27% in 2010.

Inflation – at September 2007 estimated at 0.81% compared to 3.42% as at September 2006.

Personal tax rates have again been revised. Current and proposed tax rates are disclosed in the two Tables below:

Married couple – Joint computation
Current		As from 2008
Income	Tax rate %	Income	Tax rate %
0 – 4,500	0	0 – 4,894	0
4,501 – 8,000	15	4,895 – 8,800	15
8,001 – 10,000	25	8,801 – 12,021	25
Over 10,000	35	Over 12,021	35

Single Persons or Separate Computation for Married Couples
Current		As from 2008
Income	Tax rate %	Income	Tax rate %
0 – 3,250	0	0 – 3,498	0
3,251 – 5,500	15	3,499 – 6,010	15
5,501 – 6,750	25	6,011 – 8,156	25
Over 6,750	35	Over 8,156	35

As illustrated in the budget document, married couples submitting a joint computation will see their tax burden in 2008 reduced by up to Lm 59 on joint income of up to Lm 8,000 and a tax saving of between Lm 109 and Lm 339 on joint income of between Lm 8,500 and Lm 12,000. On income exceeding Lm 12,500, the maximum tax saving is Lm 341.

For single persons and married couples submitting a separate computation earning between Lm 3,500 and Lm 5,500 (each spouse in the case of married couples) will save Lm 38 in taxation. Those earning between Lm 6,000 and Lm 8,000 will save between Lm 89 and Lm 214. On income exceeding Lm 8,500, the maximum tax saving will amount to Lm 230.

Currently parents are allowed to deduct from their taxable income a maximum amount of Lm400 for each child at primary school and Lm600 for each child at secondary school. Parents will be entitled to deduct up to Lm429 (€1,000) for children attending private kindergartens.

· VAT will be reduced from the current full rate of 18% to the reduced rate of 5% on rental expenses for artistic and cultural events and on entrance fees to museums, culture shows, concerts and theatres (cinemas excluded)

· Sponsorships and other donations by companies to approved culture institutions and/or the Malta Art Fund will be tax deductible

· Scholarships and other donations by companies to Maltese artists are tax deductible up to a maximum of Lm 8,000.

· Parents will be allowed to deduct from their taxable income fees (capped at Lm 42.93 [€ 100]) incurred in connection with their children’s participation in sports activities approved by the Malta Council for Sport

· Approved Sports Associations will recover their input VAT on expenses incurred on their facilities

· Private companies will deduct from their chargeable income sponsorship fees for national and international events made to Sport Associations and/or athletes

Old people or their families paying for private residential services are allowed to deduct a maximum of Lm858.60 (€2,000) from their respective taxable income.

The minimum children’s annual allowance will be increased from Lm52 (€ 121.12) to Lm107 (€250) per child. All families will be entitled to the minimum amount of children’s allowance for each of their children under 16 years of age. Furthermore, parents who have more than one child will benefit from an allowance equivalent to that of their first born child for each of their off springs until the children reach 16 years of age.

With effect from 1 January 2008 pensioners will be entitled to receive the increase in cost of living entitlement in full. The said increase, accounting for a third of the said entitlement, will be reflected in the form of a bonus.

The allowance of those persons who help in the up bringing of other people’s children will be increased from Lm5 (€12) to Lm17 (€40) per week.

The allowance granted for orphaned children will be increased from Lm4.74 (€11) to Lm 20 (€47) per week.

With immediate effect, the 3.5% duty payable upon acquisition of the first residential property, has been extended to the first Lm50,000 from the current Lm30,000.

This measure has also been extended to those parents who wish to donate immovable property to their direct descendants. Duty will be reduced to 3.5% from the current applicable rate of 5%. The reduced rate will apply on one donated property.

With immediate effect, the surviving spouse will not be subject to any duty on the inherited part of one’s own residence unless it is disposed of.

As from 1 January 2008, the maternity leave entitlement will be increased by another week to a total of 14 weeks.

Government will subsidise up to one per cent of the interest on the loan of the first residential property when the Central Bank base rate is higher than 3.75%. The subsidy applies when the cost of the property does not exceed Lm50,000, and will be given for the first 10 years of the loan period.

Persons with special needs will be exempt from permit fees due to the Employment and Training Corporation to employ foreign personal assistants. An exemption will also be granted from paying social security contributions for their assistants. Employers employing disabled persons registered with the Employment and Training Corporation will be exempt from the duty to make social security contributions for the first 3 years of employment.

The allowance for children with special needs will be increased from Lm5 to Lm7 per week.

In a move aimed at emphasising its commitment towards the use of alternative energy sources Government is committing a budget of around 5.4 million Euros (Lm2.3 million) co-funded by the European Union, to subsidise the use of renewable energy sources and roof insulation.

Furthermore, Government committed itself to refund the eco-contribution on schemes designed to recycle packaging waste.

The cost of living increase effective as from 1^st January 2008 is Lm 1.50 weekly. Effectively however, one Maltese Lira (Lm1) from this increase is an advance of the amount which would have otherwise been allocated by Government during next year’s budget in view of the present special circumstances where the price of agricultural products, especially wheat and cereals, is increasing substantially.

The information contained herein is based on our interpretation of the Budget 2008 and should not be used as a substitute for professional advice. No liability for errors of fact or opinion is accepted.

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