Budget 2022

11 October 2021

 

1. Economic Highlights

 

1.1 Economic Outlook

 

On the 11th of October 2021, Finance Minister Clyde Caruana presented the budget measures for 2022. During his speech, the Minister highlighted that Malta is budgeting to have a deficit of 5.6% of GDP in 2022, when compared to an 11.1% deficit during 2021 and 10.1% during 2020, as economic recovery picks up after the blow of COVID-19.

The Government is expecting that the deficit will decline to 2.9% of GDP by 2024, resulting in a debt-to-GDP ratio of 62.4% in 2024.

Despite the hit of COVID pandemic last year which resulted in the economy shrinking by 8.3%, the Government is expecting the Maltese economy to recover during 2022 and grow by 4.8% in real terms and 6.5% in nominal terms.

The debt to GDP-ratio is expected to be 61.8% during 2022. The Finance Minister explained that Malta managed to keep its labour market unharmed by reducing unemployment and raising the number of gainfully occupied persons. Unemployment in 2019 was 3.6% when compared to 3.2% in August 2021. The employment rate was 76.8% in 2019 and 77.3% in 2021 respectively.

 

2. Employment market, pensions and social measures

 

2.1 Cost of Living Allowance (COLA)

 

The 2022 cost of living allowances applicable to all workers, pensioners and social benefits beneficiaries will again amount to €1.75 per week.

In addition to the cost-of-living adjustment, the minister announced the development and implementation of a new independent mechanism through which an additional assistance will be provided for vulnerable people and families when inflation is high.

The cost of such new compensatory mechanism will be borne entirely by the government.

 

2.2         Labour Market Incentives

 

Individuals engaged in part-time work will now be allowed to pay social security contributions on more than one part-time job, up to 40 hours a week of employment. Moreover, par-time income (for full time employees, students and pensioners) will be subject to a 10% tax rate (down from 15%) as from 2022.

 

Workers in non-managerial positions whose income does not exceed €20,000 a year will be taxed at 15% on the first €10,000 they make from overtime working hours.

 

In addition, workers who work with non-standard working hours, such as night shifts and weekends, and earn up to €20,000 a year will get a €150 in-work benefit per annum. This measure requires for person to be in employment for at least 6 months per annum in the following sectors to be eligible: accommodation, catering, administration and support services, manufacturing, transport, wholesale and retail.

 

2.3         In-Work Benefits

 

The budget further strengthens the in-work benefit by extending the benefit thresholds so that further families are eligible for this benefit. For couples where both spouses work, the threshold will rise to €50,000 (up from €35,000). In the case of couples where only one parent works and for single parents, the threshold will rise to €35,000.

 

2.4       Children’s allowance

 

Any child that is suffering from physical or mental disability will see an increase of €5 in their allowance, which is over and above the children’s allowance.

 

2.5         Grant for parents

 

Individuals who have a child or adopts a child during 2022 will receive a grant of €400, increased from €300 last year as an incentive to support new parents.

 

The Government plans to initiate discussions in 2022 with respect to implementation of a directive of the European Union on parental leave and work-life balance which will extend the paid paternity or birth leave to 10 days and will introduce two months of paid leave for each parent to be used until the child is 8 years old. In addition to this measure, free childcare services will be made available to workers which work shifts, nights and weekends.

 

It was also announced that parents-to-be are to receive a starter kit with “sustainable products” for their new-born.

 

2.6         Incentives for Pensioners

 

In addition to the increase in COLA (€1.75 per week), pensioners will be given another increase of €3.25 per week, for a total increase of €5 per week. Such an increase is made available for pensioners for a seventh year in a row resulting in an annual increase in pensions of €260. The total cost of this increase is expected to amount to approx. €24 million and around 95 000 pensioners will benefit from it.

 

An increase in the supplementary allowance of between €3.47 and €6.50 a week varying according to income is also planned for married pensioners who do not earn more than €14,318. Single pensioners, including widows and widowers, will receive an increase of between €4.10 and €5 per week provided that their income does not exceed €10,221.

 

Moreover, the applicable pension income tax exemption threshold is being raised to €14,318 in order to ensure that pension income remains exempt from tax.

 

Couples that are in receipt of a pension and opt for a joint tax computation, will continue seeing an increase in the tax exemption threshold applicable to non-pension income to €3,600 thereby relieving tax on any other income (up to the applicable threshold) over and above the pension income.

 

In addition to the above measure, it has been announced that people aged 80 and over, will automatically become eligible for free medical assistance with no need of a means test.

 

An increase of €50 to €400 per year has been announced for individuals aged 80 and over known as the Grant for Senior Citizens who still live in the community or in private nursing home.

 

Widow’s pensions will be adjusted to be closer to the pension to which their late spouse was entitled. Pensioners in receipt of a widow’s pension whose income does not exceed €10,221 will receive between €10 and €15 weekly increase.

 

From 2022, there will as well be an increase in service pensions of €200 which will not be considered as part of the social security pension. The tax exemption threshold will be €3,066. Further improvements will be implemented for service pensioners over 72 years of age or who turn 72 in 2022.

 

People who have reached retirement age but do not qualify for the pension due to not enough contributions will be granted an increase of €150 in the annual bonus. The bonus for those who paid less than 5 years social security contributions will increase to €400 per year and for people who paid more than 5 years social security contributions the bonus will increase to €500 per year.

 

In order to encourage pensioners to remain in employment, within 5 years from 2022, the income they receive from pension will be excluded from the income brought to tax.

 

 

2.7         Home Carer Allowance

 

The annual subsidy payable in terms of the Carer at Home will increase from €6,000 to €7,000. The Government will also increase the subsidy rate of the “Home Helper of Your Choice” scheme, from a subsidy of €5.50 per hour to €7 per hour.

 

Moreover, with effect from January 2022, parents who are forced to stop working in order to take care of a differently abled child over the age of 16 years (and where they are in receipt of the Additional Assistance applicable for Severe Disabilities), will receive an additional €200 carer grant.

 

 

2.8          Education and students-related Measures

 

Students will be receiving an increase of 10% in stipends, with the ability to work an extra 5 hours a week without affecting their eligibility to benefit from the stipend. Moreover, students will also obtain the COLA proportional increase.

 

2.9       Other Social and Family Measures

 

School principals will receive €10,000 each, to be allocated to disadvantaged children are not left without basic resources or foodstuffs.

 

The tax refund that has been granted will continue during 2022. Workers will receive cheques of between €60 and €140 each significantly increased when compared to last year, with lower income earners receiving a higher refund, as per the table below:

 

Single Rates tax computation

 

 

Chargeable Income (€)

Tax Refund

 

2021

2022

€0 - €15,000

€80

€125

€15,001 - €30,000

€65

€95

€ 30,001 - €59,999

€45

€60

     

Married Rates tax computation

 

 

Chargeable Income (€)

Tax Refund

 

2021

2022

€0 - €20,000

€95

€140

€20,001 - €40,000

€80

€110

€ 40,001 - €59,999

€50

€65

     
     

Parent Rates tax computation

 

 

Chargeable Income (€)

Tax Refund

 

2021

2022

€0 - €15,000

€90

€135

€15,001 - €30,000

€75

€105

€ 30,001 - €59,999

€45

€60

 

 

3. Incentives applicable to the Housing market

 

3.1 VAT

 

As from tomorrow, the restoration of properties older than 20 years and not lived in for at least 7 years, properties within Urban Conservation Areas and properties built in a “traditional Maltese style” will benefit from a refund of VAT the first €300,000 in works. That corresponds to a €54,000 in VAT saving. This incentive however will not be applicable in case of properties which are divided into units.

 

3.2 Tax and Stamp Duty

The Finance Minister announced that there will be no property tax or stamp duty on the sale of properties older than 20 years and abandoned for at least 7 years properties, in Urban Conservation Areas or properties built in the “traditional Maltese style”. The exemption is capped to the first €750,000 of the price of the property.

 

First time buyers of such properties will receive a grant of €15,000 for properties situated in Malta and €30,000 for properties situated in Gozo.

 

The stamp duty exemption for first-time buyers introduced in the past years will be retained also during 2022 with the tax-exempt amount kept at €200,000. The reduced 3.5% stamp duty rate on the first €200,000 on the purchase of a residential home (even if the individual is not a first-time buyer) and on transfers causa mortis of property where the transferee already resides, will be retained for 2022.

 

The reduced 1.5% (from 5%) duty on documents rate and the 5% (reduced from 8%) property transfer tax, introduced as part of the Covid regeneration package, is set to end in June 2022 with the promise-of-sale agreements registered by the 31st December 2021.

 

3.3 Other Measures Related to Property

 

The government will reduce by 50% the tax due on the first €200,000 of the value of properties bought or sold and rented for at least 10 years to tenants eligible for the rent benefit given by the Housing Authority. No tax would be charged when the property is sold to the tenant.

 

Tax will also be reduced by 50% when properties rented for more than three years (but less than 10 years) at “affordable rates” are sold to the tenants.

 

During the speech the Minister also announced that the property equity sharing scheme, which was introduced last year, is being extended and applicable for people aged 30 and above (previously 40 years and above).

 

In addition, the Government will retain the New Hope Scheme which acts as a guarantee in lieu of a life insurance for individuals which due to their medical condition are unable to obtain a life insurance cover.

 

Subsidised rent housing valued at up to €250,000 that needs structural repairs will now be eligible for subsidies of up to €25,000.

 

4. Business Aid Measures

 

4.1         Tax incentives for inheriting business

 

The Government will extend to 2022 the reduced rate of 1.5% stamp duty on a transfer of a family business to descendants.

 

4.2         Malta Enterprise Scheme

 

Malta Enterprise will introduce a scheme to tax incentivise the reinvestment of profits as long as such investment is made within 2 years from January 2022.

 

5.  Environmental Measures

 

5.1         Incentives for clean transport

 

As from tomorrow, the grant for the purchase of electric plug-in hybrids vehicles will rise by €3,000 to €11,000. For electrics, the grant will be also of €11,000, rising to €12,000 if an old car is in the process of being scraped. The grant for scrapping of motor vehicles will increase to €2,000. Moreover, electric and hybrid vehicles will remain exempt from registration tax and annual road licence for the first 5 years.

 

VAT refunds for bicycles and electric bikes will continue, as will existing schemes for scooters, pedelecs and other such forms of transport.

 

The Government also announced that they are planning a €900 grant for trucks, buses and minibuses that are equipped with PV panels

.

5.2         Other environmental measures

 

There are also plans to introduce a carbon trading scheme for public entities and private entities of this kind.

 

5.3         Other Schemes

 

The schemes to encourage the purchase of solar panels, solar water heaters, heat pumps and other such devices will be extended during 2022. The Government plans to boost funding to equip public buildings with solar panels, a fund to encourage the use of batteries to store renewable energy and schemes for NGOs to buy solar panels and other such technology.

 

6. Other Measures  

 

Finance minister Clyde Caruana said that as from 1st October 2022 the public transport in Malta will become free of charge for all residents and holders of a Tallinja Card. The measure aims to encourage the use of the public transport as well as to reduce road traffic and congestions.

 

This measure will come into force late next year in order to allow the public transport operator sufficient time to make the necessary arrangements.

 

As part of a package of measures to support and encourage artists, producers and promoters in the field of art and culture, the government will introduce a new tax rate of 7.5% for artists applicable as from basis year 2022. In order to establish the income of artists over an average of three years for income tax purposes, an additional mechanism will be introduced.

 

Finance Minister Clyde Caruana said on Monday that as of June 2022, interests on unpaid tax and VAT will be hiked to 7.2% per annum. Caruana said remissions of interest payments on unpaid tax balances would no longer be the norm and will be considered within the parameters of LN 361 of 2013.

 

Businesses will be able to transfer the capital allowances from group entities which have been negatively impacted during covid to other group entities which are still running a profit, providing for a reduction in tax.

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