Alternattiva Demokratika was the first political party this general elections to propose a 5% tax cut for the 37,376 income earners who fell under the 35% tax bracket. Just days later, the Prime Minister proposed an even more drastic tax cut of 10%, benefiting people in the same tax bracket but who earn less than €60,000.
At present this category constitutes 37% of those with a taxable income, and altogether they pay 86% of all income tax paid to government.
Reducing the taxes of high-income earners is generally considered the prerogative of conservative parties. So how did a left-leaning green party like AD become the first to propose such a measure?
AD’s spokesperson for finances Edward Fenech, who costs AD’s proposal at €22 million, insists that “one does not achieve social justice by simply raising tax rates, because if this results in less income to government then the funds for social programmes will not be sufficient.”
In short, Fenech rebukes the idea of a Robin Hood tax policy. “Our aim isn’t to punish the well off but to ensure that more and more people pay their fair share of taxation.” One way of working towards this aim, according to Fenech, is by reducing the top rate of income tax whilst working to weed out the gross tax evaders.
The Prime Minister excluded those earning more than €60,000 from his more radical tax break. How come AD did not do the same?
Fenech says there are very few individuals declaring income of more than €60,000 while there are still many people earning tens of thousands of euros and declaring incomes that are subject to very low tax. “Some of these people even have the cheek to claim benefits. If the twin strategy of lower taxes and better compliance works, the next coalition government will have more money for social programmes.”
While pushing for a decrease in taxation for the well off, AD stands out as the only party advocating an element of fiscal redistribution by proposing an increase in taxation on bank profits from 35% to 40%. Fenech points out that such a measure should only be considered if the cost of other tax cuts is unsustainable.
But raising taxes on banks, a bogeyman for both lower and upper classes, could pose legal problems as it would effectively discriminate between different economic sectors. Edward Fenech does not see any insurmountable legal obstacles but has already envisaged a contingency plan.
“If there are problems, then all the next coalition government has to do is introduce a tax rate of 40% on those companies making more that €50 million of profit annually.”
AD is costing its proposal to cut tax for the highest income bracket at €22 million. Is it is simply fishing for the votes of the upper middle-class groups?
Fenech says AD had already proposed reducing company tax from 35% to 30% in its pre-budget proposals last June. “The reason we made this proposal is because Maltese companies suffer one of the highest rates of company tax in the EU.”
But on the eve of the electoral campaign AD went one step forward by proposing that the top tax rate on individuals also decreases to 30%. “If our proposals are implemented in one year then they will cost €22 million. However if needed, the proposal can be introduced gradually by lowering the top rate of income in two stages first from 35% to 32.5%, then from 32.5% down to 30%. In any case the proposal is sustainable even if the economy grows at a humble 2.5%.”
With all parties proposing different tax cuts, are we assisting a competition on who is the greatest tax slasher?
Fenech disputes the costings presented by the Prime Minister, arguing that his tax cut would cost the country €125 million annually. And he considers Labour’s proposal to de-tax overtime as genuine in intention, but unworkable in practice. “Coming from a left-wing party this proposal is shocking to say the least. Labour should be making proposals to ensure the working and middle classes can live decently from 40-hour-a-week jobs, not encouraging people to work till they drop dead.”
An observation which proves once again that ideology is the first casualty of this electoral campaign.

jdebono@mediatoday.com.mt