How workers will be affected by the income tax cuts

With the proposal announced last week by Prime Minister Robert Abela, Maltese and Gozitan workers will enjoy the largest income tax cut ever given in the history of Malta. Through a change in income tax bands as well as refund cheques, the proposal will benefit everyone, with €66 million boosting people’s disposable income.

This on top of the support introduced in the past budget of €24 million. In all, workers will be better off by a total of €90 million. 

The income threshold from which people start being taxed will be increased by €1,700. This income would previously have been taxed at a rate of 15%. Which means that from this measure every person who pays tax will save a minimum of €255. After this reform, a parent would need to earn more than €1,000 to be taxed. A person who opts for a married tax computation must exceed a monthly income of €1,180, whereas those on a single rate must earn more than €900 per month to incur tax. 

In all, workers will be better off by

a total of €90 million. 

This raising of the income tax threshold is the largest ever. So much so that it is three times larger than in 2007, which is to date the largest such measure. 

In addition to this positive effect, there will also be a change in refund cheques. These will be improved by €25 so that the most generous cheque will rise to €165 for those on the married rate, €160 for parents and €150 for those on the single tax computation.

This means that when you consider these two effects there are some who will gain €365. The average improvement will be €300, while those on the median income are expected to benefit by €315.

Practical examples of income improvement

Example 1: Charlene, a single parent, works in a shop with an income of €13,000. She paid €555 in tax with the 2012 income tax rates. Currently, even because she receives a refund cheque, the burden has decreased to €240. Following this reform, Charlene will not only have any tax burden, but now will instead be receiving a payment from the Government of €40 each year. 

So, while she is already paying less than half of what she paid under GonziPN, now Charlene will benefit by another €280. This is equivalent to being given a raise of a week’s pay.  

Example 2: Enzo, a bachelor working in a hotel with an income of €16,000. Back in 2012 he had a tax burden of €1,725. The burden has decreased to €1,095 at present. Following the proposed measure his income tax will be €775. 

Enzo will thus be paying a third less tax than he currently pays, and less than half what he would have paid under GonziPN. By saving another €315 in income tax, it is as if Enzo got an additional week’s pay but without having to actually work.

Example 3: Melissa, a mother who works as a learning support assistant and earns €20,000.  This income at the 2012 income tax rates meant €2,025 in tax. Currently, thanks to measures since 2013, her tax burden has decreased to €1,740. But with the manifesto measure this amount will be further reduced to €1,425.

Thus, after already enjoying a reduction of €285 since 2013, from next year she could save another €315, and end up paying a third less than what she paid under GonziPN. 

Example 4: Joseph, Melissa’s husband who is an Assistant Head at another school, earns €31,000.  In 2012 he paid €5,775 in tax. This burden has so far fallen to €4,640 and with the Labour manifesto proposal he would save a further €300, as his tax would fall to €3,840.

Melissa and Joseph save €615 between them with the proposed changes and would pay a third less than they would have paid under GonziPN.

Example 5: Mario, a practise nurse whose wife Rita works part-time, with an income of €28,000. He paid €3,095 in tax in 2012. Thanks to changes since then, he now pays €2,865, an improvement of €230. With the proposal of Dr Robert Abela, Mario and Rita will have to pay just €2,545.

They will have €320 more in their pockets with the new tax proposal. They will be paying 20% less income tax than they were under GonziPN.

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