Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th October 2021

In Lewis Carroll’s “Alice’s Adventures in Wonderland, the heroine falls down the rabbit hole which lands her in Wonderland. In our case, reading the budget proposals for next year as announced by the finance minister and comparing same with a loftier version by the Opposition leader gives her a surreal feeling that she is entering a Wonderland of contrasting economic scenarios.

Some may label the tantalizing experience as if we woke up from a psychedelic dream. Going down the rabbit hole is a metaphor for a journey into the unknown, as Alice is now invited to comment on which is the most sustainable budget on offer. Alice’s mindset like that of voters is childlike, distractible so she begins to piece together a perfect Malta where she can live and prosper. This article includes two main fictional characters of Tweedle Dee and Tweedle Dum.

Like in the book “Alice in Wonderland”, local voters are facing a blitz of wholesome promises which if enacted will lead them to a new world of unknown benevolence. As Alice progresses through reading budget proposals, she loses her sense of identity, just as the party faithful feel when they idolize their leader.

A comparison of budget proposals offered by the government and those composed by the Opposition - makes an individual set off on a quest to reach the golden pot at the end of the rainbow. Let us try to compare and contrast the salient topics of both budgets. Such budgets have to be evaluated after taking into consideration the economic contraction last year now poised to stage a partial recovery in 2022.

At the end of October 2021, Alice discovers that the cookie jam is empty and questions how prolific was the state when discovering Government debt crept up to €7,989 million. The austerity suffered by retail and hospitality in 2020 due to the onset of lockdowns and curfews had gradually eased in the first half of 2021 and perhaps this is the cherry on the cake which spurned ambitious budgets for 2022.

One of the jewels in the crown that helped mitigate a severe economic downfall was the resilience of the Financial Services sector. This accounted for 8.4 per cent of gross value added and since 2010 increased by an average of 8.8 per cent each year. Over the years, Malta has successfully attracted key international players in Financial Services, supported by the continuous improvement in the ease of doing business, a strong regulatory environment, unhindered access to the EU market, a long tradition of business support services especially auditing and legal services, enhanced tax competitiveness and the availability of skilled and English-speaking workforce.

For a small island, which prides itself of twenty-six banks, including three branches of foreign banks and foreign-owned credit institutions amidst a number of international insurance and funds companies - surely greylisting is anathema to maintain the status quo.

Back to the budget theme, both champions wax lyrical about the need to ride the digital bandwagon. EU funds will be made available under the RRP scheme to improve mobile digital connectivity and infrastructure. This needs immediate attention as Malta ranks low in the 2021 Digital Quality of Life Survey - taken among 110 countries.

Let us peep into what Tweedle Dee (aka the Opposition leader) proposed to challenge the version previously proposed by Tweedle Dum (aka the minister of finance). Tweedle Dee promised travel vouchers for all young people, automatic pension increases at twice the cost of living adjustment, and lower tax for those earning between €60,000 and €80,000.

A novelty was the extension of the 25% tax bracket to all those earning up to €80,000. More fun down the rabbit hole as the VAT exempt bracket goes up to €60,000, benefitting many small businesses. As the Illuminati at MCESD dare not change the COLA mechanism so Tweedle Dee smartly conceded an automatic pension increase of double the annual COLA rate. Students to receive a 10% rise in annual stipends plus a €500 travel voucher.

No recipe for a delicious budget pudding would be complete unless the menu parades a universal living wage. Apprentices will relish the re-establishment of trade schools. Frontliners and hospital staff will receive recognition towards their excellent work partaking of a €14 million bonus - equally shared as a thank-you gift.

On tourism, Tweedle Dee will reduce VAT on restaurant and hotel services to 7%. Well-being is paramount and hey presto, Alice welcomes family-friendly measures such as 15 days of paternity leave and eight weeks of parental leave. She walks in the garden of Wonders overwhelmed by the generosity of a cornucopia of goodies conjured by Tweedle Dee.

Certainly, this outshines the menu offered by Tweedle Dum (yet, none question whether it is sustainable). The latter is seen with a smirk on his face as he announced a surprising delicacy that took the biscuit. The shrewd economist added an ECOHIVE bombshell that left Tweedle Dee holding his breath.

This waste-to-Energy plant forms part of a series of ecological projects with an investment of around €200 million. When in operation it will process waste that cannot easily be recycled. This treats 40% non-recyclable waste diverting it away from landfill disposal. Nothing proposed by the Tweedle Dee match the environmental marvel of ECOHIVE, having an annual capacity to treat 192,000 tonnes of waste. More sensations hit Alice when she discovered the exclusive Material Recovery Facility sporting an annual capacity of 70,000 tonnes.

This magical machine also converts waste into biogas so farmers will be given free quality compost. All hazardous waste such as clinical and pharmaceutical material will be processed and free heat energy released. There are too many bright ideas in Tweedle Dum’s hat to disclose in this short article.

A typical example includes a concession for companies to be able to transfer capital allowances which arose in 2020 and 2021 and remained unabsorbed due to reduced profitability caused by the COVID-19 pandemic to other group companies.

Last but not least, there is tax relief on the first €750,000 on sale and purchase of vacant property within the Urban Conservation Area or has heritage value. The overflowing cookie jar includes a grant of €15,000 (Gozo €30,000) to property buyers. Workers rejoice as the tax on the first €10,000 of overtime will be at a reduced rate of 15%.

This kaleidoscope of goodies on offer by the finance minister vs Opposition leader has left Alice in a befuddled state. She will try to dig herself out of the rabbit hole to reach the surface where reality starts and Utopia ends.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th October 2021
Get in touch: info@pkfmalta.com