Income tax was reduced in every budget since Labour was elected in 2013.
One of the first pledges was to exempt persons earning a minimum wage from paying income tax. Labour then lowered the tax rate from 35% to 25% for those on middle to high incomes, which was a tax cut originally promised by the Nationalist Government, yet it was never implemented. Thereafter, Labour proceeded to remove the obligation for tax to be paid on state pensions and on parts of the non-pension income of pensioners.
Following the 2017 election, the Government implemented an annual tax refund system which this year alone willleave €24 million in people’s pockets, with the bulk of this sum going to those persons on low incomes. In addition, Labour reduced the tax on overtime and part-time work.
It is no surprise therefore that at 30%, Malta has the lowest tax burden in history, down from nearly 35% in 2012.
The above listed measures are indeed significant, however Labour wants to deliver even more. This is why the Party included yet another tax cut in its manifesto for the forthcoming election. This proposal brings together the change in tax brackets of the first Labour legislature, and the tax refund reform introduced in the second legislature, to create yet another boost to the disposable income of families. This will boost the purchasing power of taxpayers by an average of €300.
The proposal raises the income threshold on which people start to pay tax by €1,700, which is the highest increase ever effected in the minimum income threshold and three times higher than the largest increase introduced by a Nationalist administration back in the budget of 2007. As a result of the proposed measure, a parent will not pay tax on the first €1,017 he or she earns every month. And for those who earn €12,200, rather than paying €255 in income tax, they will now not pay anything.
This saving as a result of the change in the initial tax threshold, will be brought forward to all those paying income tax. Besides this saving, Labour is proposing to boost the tax refund cheques raising the top rate from €140 to €165. Therefore, persons earning up to a median income, will remain eligible for the tax refund cheques. Hence, the parent earning €12,000 as mentioned above would also see his/her tax refund cheque rise by €25, meaning a net gain of €280.
These two measures will jointly boost disposable income by €66 million, over and above the already introduced €24million tax refunds, thus implying a boost of €90 million in families’ disposable income. This makes this proposal the largest and most comprehensive single cut in income taxes ever introduced in Malta.
Labour’s policy may limit the tax benefit to those on the highest income to €255, but those on middle incomes will rise improvements of €300. For instance, a parent earning €20,000 will see their tax bill fall from €1,740 to €1,425. This means a decline of 17% in their tax bill which is more than the drop they had seen between 2012 and 2022. Because of Labour’s tax policies, they will be paying 30% less tax than they would have done under the 2012 tax rates.
Instead of receiving tax bills, many taxpayers will start receiving tax refunds.
Whereas in 2012 a single person earning €11,000 would have faced a €375 bill, in 2022, he faces a €160 bill. Further to this, under this proposal, he or she would receive a €120 cheque in their name. The same applies to a married person earning €15,000 as they will now start receiving a cheque of €75 rather than paying a bill of €205.
While a parent earning the average wage in 2012 was facing an effective tax rate of 10.1%, these proposals will see their tax burden reduced to 7.1%. This is equivalent to receiving a raise of nearly two weeks’ salary.
By giving relatively more generous cuts to those on low to middle incomes, this policy continues to reward work and creates incentives for people to increase their labour participation and reduce the dependency on social welfare.
At the same time, the policy also rewards those on middle to high incomes.