2022 Budget Highlights - A4 Services: Trusted Accounting and Audit Solutions in Malta

The thrust of the 2022 Budget presented in Parliament by the Minister of Finance, focused on looking forward to a country suitable for our children and thus sustaining the Malta’s economy in the midst of the pandemic to soften its fallout through incentives, social justice and sustainability.

Fiscal and Economic Review

After a severe contraction in 2020 and the first half of 2021 due to the COVID-19 pandemic, the Maltese economy is expected to partially recover by the end of 2021. In fact, throughout the first half of 2021, economic activity grew by 6.9 per cent in nominal terms and by 5.6 per cent in real terms. The economic recovery recorded in the first half of 2021 was mostly driven by contributions from the domestic side of the economy, attributable to both private and public consumption expenditure and gross fixed capital formation (GFCF). From an external standpoint, in the first half of 2021, Malta recorded a neutral contribution from net exports of goods and services.

In the first six months of 2021, reflecting the strong rebound of domestic demand, imports grew by 3.3 per cent which outweighed the increase in exports of 3.0 per cent.

During the first half of 2021, Gross Value Added (GVA) in nominal terms registered a growth rate of 6.3 per cent over the same period in 2020, reaching a total of €6.2 billion. This growth in GVA was predominantly driven by the recovery in the Services sector, which contributed 5.5 percentage points to GVA growth, and to a lesser extent by the Industrial sector, which contributed 0.8 percentage points. The only sector that contracted during the first half of 2021 was the Wholesale and Retail, Transportation and Accommodation sector, declining by 2.0 per cent. This was attributable to a severe decline in the first quarter of 2021 as temporary restrictions were imposed to contain the spread of the virus.

The Manufacturing sector proved to be robust when compared to other sectors in the economy. In the first half of 2021, the Manufacturing sector had fully recovered increasing by 6.4 per cent. For the period January to July 2021, incoming tourists to the Maltese Islands amounted to 247,155, a 39.5 per cent decrease relative to the previous year. Throughout January to July 2021, the share of tourists visiting Malta for a holiday declined by 40.9 per cent, while those visiting for business purposes further declined by 33.2 per cent from the prior year. Contrastingly, inbound tourists visiting Malta for ‘other’ reasons, including educational purposes, increased by 24.2 per cent.

In the first half of 2021, compensation of employees amounted to €3.2 billion. The contained impact of the COVID-19 shocks on compensation of employees reflected the Government measures including the Wage Supplement Scheme. The factor distribution of income gains throughout the first half of 2021 was more balanced when compared to the previous year. Corporate profits, which absorbed most of the decline in GDP in 2020, recovered by 7.4 per cent, while the compensation of employees increased by 5.6 per cent.

Malta’s nominal labour productivity in terms of persons employed stood at 90.6 per cent of the EU average in 2020. In terms of hours worked, Malta’s productivity stands at 75.8 per cent of the EU average. Between 2010 and 2020, real labour productivity declined by 2.4 per cent. Unit labour costs in Malta grew by an average of 3.2 per cent between 2011 and 2020, which exceeded both EU and Euro Area averages which grew by 1.4 and 1.3 per cent, respectively.

In August 2021, Malta’s 12-month moving average rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) stood at 0.2 per cent, whereas the annual rate recorded was 0.4 per cent. The official rate used to compute the Cost-of-Living Adjustment (COLA) is the 12-month moving average rate of inflation as measured by the Retail Price Index (RPI). It is to be noted, that the weight compositions of the HICP and the RPI are different. After decelerating to 0.43 per cent till April, the 12-month moving average rate of inflation as measured by the RPI turned positive, reaching the rate of 0.78 per cent in August 2021.

According to the Property Price Index (PPI) compiled by the National Statistics Office (NSO) and based on administrative records from the Commissioner for Revenue, in 2020, Malta’s property prices increased by an average of 3.4 per cent when compared to the previous year. This is below the EU27 average which stood at an average change rate of 5.5 per cent.

The global COVID-19 pandemic brought with it unprecedented challenges for the Maltese labour market. However, employment remained robust following an upward trend since the second quarter of 2020 whilst the unemployment rate continues to be one of the lowest rates in the European Union (EU). By June 2021, the unemployment rate returned to pre-pandemic levels as a result of a series of Government policy initiatives that encouraged the retention of employees.

Despite a drop in net migration, Malta’s population grew by 0.3 per cent by the end of 2020 totalling 516,100. The share of people aged 65+ increased significantly in recent years also in light of improvements in life expectancy. In fact, in 2020, persons aged 65 and over stood at 18.9 per cent of the total population, which was 1.2 percentage points higher than that of 2013. Nonetheless, in the last year there was a decrease in the life expectancy at birth by 3 months.

The share of the working age population, that is persons aged between 15 and 64 years, represented 67.7 per cent of the total population, a drop of 0.2 percentage points when compared to 2013, reflecting Malta’s demographic transition where higher employment rates, particularly for women and the elderly, are easing the pressure stemming from rising old-age dependency.

Albeit the COVID-19 pandemic and restrictions imposed by the Government to combat the spreading of the virus, during the second quarter of 2021, the number of employed persons increased by 8,317 individuals over the same period in 2020, reaching a total of 266,553 persons in employment. During the second quarter of 2021, the number of employed persons aged between 15 and 64 increased by 1.8 percentage points relative to the same period in the previous year, standing at 74.4 per cent. This remains higher than the average employment rate recorded across the EU.

While managing to deal with the challenges of COVID-19, Malta has also managed to maintain an unemployment rate which is one of the lowest among its European peers. Despite the pandemic slowing down the downward trend in unemployment rates observed in recent years, by July 2021, Malta’s unemployment rate returned to pre-pandemic rates, standing at 3.4 per cent, which is well below the EU average of 7.2 per cent.

During 2020, the Maltese average equivalized household income stood at €19,048, which has continued to follow the same positive upward trend experienced during the past few years, converging steadily towards the EU27 average as shown in Chart 2.13. Malta’s average household income as a proportion of the Euro Area (EA) average has increased by 17.0 percentage points since 2010 from 60.3 per cent in 2010 to 77.2 per cent in 2019. A similar pattern is also present when compared to the EU average.

Under the 2020 package, the EU and its Member States, collectively, were committed to a 20 per cent reduction in greenhouse gas emissions from 1990 levels by 2020. In 2019, GHG emissions in Malta were down by 17.8 per cent compared with 2010 levels, representing an absolute reduction of 581 thousand tonnes of CO2-equivalents.

In 2020, total imports and exports for the year accounted to €5,394.4 million and €3,365 million respectively, representing overall 27.5 and 11.2 per cent decreases relative to the 2019 figures (see Chart 3.1). In 2019, Malta experienced major increases in imports, including machinery and transport equipment which subsequently fell in 2020. In 2020, Malta registered an overall contraction of the trade deficit by 44.4 per cent amounting to €2,029.4 million. From January to July 2021, exports declined further by €45.7 million while imports for the same period increased by €172.8 million when compared to the same period in 2020. As a result, the trade gap increased by €218.5 million.

Malta has maintained a historical trade deficit averaging 23.6 per cent of Gross Domestic Product (GDP) at current market prices over the past six years. As of July 2021, the trade gap for Malta further increased by €218.5 million (13.7 per cent) relative to July 2020. More specifically, the increase in the trade gap reflected a 5.0 per cent increase in total imports and a 2.4 per cent decrease in exports.

The COVID-19 pandemic has disrupted Malta’s external economic environment, with the current account surplus turning into a deficit. This means that domestic savings were not enough to finance domestic investment, increasing external borrowing and debt. The surplus turned into a deficit due to a significant drop in domestic savings because of the global pandemic. Companies registered losses due to the COVID-19 restrictions to contain the pandemic, forcing them to draw from past savings to sustain their investments. These losses were partly mitigated by higher Government spending through fiscal policy measures.

When comparing the first half of 2020 with that of 2021, Malta registered an increase in the current account deficit, with public investment remaining unchanged and a slight rise in private investment of about 0.2 percentage points. A decrease in domestic savings was also recorded at 1.7 percentage points. Throughout the period January to August 2021, €962.1 million worth of stocks were issued by the Maltese Government on the primary market, with redeemed stocks amounting to €462.2 million. Newly issued corporate bonds amounted to €88.4 million as at August 2021, thus representing a decline from the €100.0 million issued in the first eight months of 2020. Over the same comparative period, the amount of corporate bonds redemptions also decreased by €92.9 million whilst amounting to €21.4 million for the period ending August 2021. Similarly to the first eight months of 2020, no deductions were recorded for the period January to August 2021. Moreover, rollovers amounted to a total of €489,600 from January to August of 2021, showcasing a drop from €13.7 million recorded in the same period of 2020. In addition, buy-backs increased from €1.7 million as at August 2020 to €2.7 million as at August 2021.

At the end of August 2021, the Share Index of the Malta Stock Exchange increased to 8,062.1 in comparison to 7,550.0 registered in the same period of 2020, reflecting an increase of 6.8 per cent. In addition, market capitalisation in the equity market increased from €3,711.0 million in August 2020 to €3,970.4 million in August 2021. Total market capitalisation increased from €12,965.0 million to €13,914.6 million when comparing the first eight months of 2020 and 2021, thus representing an increase of €949.5 million.

The economy was hit hard by the consequences of COVID-19 during 2020, which in turn needed the Government’s intervention to help mitigate the effects of the pandemic on various economic sectors. On a cash basis, in 2020, the central Government’s Consolidated Fund registered a deficit of €1,467.9 million The general Government recorded a deficit of €1,267.9 million or 9.7 per cent of Gross Domestic Product (GDP) in 2020.

The debt ratio registered a 12.7 percentage points increase when compared to the level recorded in 2019 and reached 53.4 per cent of GDP in 2020. During the first half of 2021, the increase in the general Government revenue ratio to GDP more than outweighed the increase in the general Government expenditure-to-GDP ratio, such that the general Government balance improved from a deficit of 11.7 per cent of GDP in the first half of 2020 to 9.3 per cent during the corresponding period in 2021. Similar positive developments were registered in the balance of the Consolidated Fund, which improved from a deficit of €1,086.2 million during January-August 2020 to €753.2 million during the corresponding period in 2021.

The fiscal and financial measures in summary include:

Retirement, widow and Invalidity pensioners to receive an annual increase of €260 or a weekly equivalent of €5, made up of the weekly cost of living adjustment of €1.75 and an additional adjustment of €3.25.
Increase in supplementary allowance: A married couple earning not more than €14,318 per annum, will receive a weekly increase ranging between €3.47 and €6.50. Single individuals earning not more than €10,221 per annum, will receive a weekly increase ranging between €4.10 and €5.00.
Adjustment in the maximum taxable income for pensioners to €14,318 so that the amount of €3,600 earned by a married couple over and above the maximum pension received, will remain tax exempt.
Gradual increases in the pensions for widows so that these are aligned with their deceased spouses. These increases are project to amount to €5 per year until the alignment is complete.
An increase of €200 in the servicemen’s pension.
Bonus of €2.50 per week or €130 per annum for individuals who retired after 2008.
Increase of €150 in annal bonus for individuals who reached retirement age but could not receive a pension as they have not accumulated enough national insurance contributions. Individuals who paid less than 5 years’ contributions will receive €400 per annum whereas individuals who paid more than 5 years’ contributions will receive €500.
Increase of €50 for individuals who are older than 80 years, so that their annual grant received increases to €400 per annum.
Increase of €100 in childbirth or child-adoption grants from €300 to €400 per birth or adoption.
Increase of €5 in the allowance for children with special needs to an annual allowance of €1,560.
Increase of €300 in the grant for the services of carers for persons with severe special needs, bringing the total annual allowance to €500.
Full payment of cost-of-living adjustment to individuals benefiting from Social Assistance.
Increase of €1,000 per annum in the benefit for a Carer at Home, increasing the annual benefit to €7,000.
Increase in the subsidy rate for the Scheme Home Helper of Your Choice from €5.50 per hour to €7 per hour.
Adjustments to capital asset threshold deriving from a will for non-contributory pensioners who had been receiving such a pension for 5 years. The threshold for a married couple will increase from €23,300 to €50,00 and for a single individual it will increase from €14,000 to €30,000. Donations amounting up to €20,000 will be excluded from the capital asset calculation as well.
Individuals who have more than one part-time job, and which collectively generate a maximum amount of 40 hours, will have the opportunity to pay social security contributions to contribute for an eventual social security contribution.
Adjustment in the assessment of capital assets for medical assistance to individuals who are considered as invalid.
Removal of means test for individuals benefiting from assistance and benefits due to severe disability.
Removal of legal restrictions for individuals who suffer an injury during work and keep on working while receiving a pension, no negative effect on future social security benefits.
Favourable amendments for exemptions and reductions on vehicles acquired by individuals with special needs.
There will be the launch of the first interregional accommodation programme to house the 80 elderly and youth residents.
Equity Sharing Plus scheme will be extended to those having low income and are over 30 years of age. The Government will be co-owner of the property by committing an outflow of up to 50% of the property’s purchase price.
Schemes targeting home ownership would again be available next year: assistance for the 10% deposit on the promise of sale, bank loans approval, and the home insurance guarantee scheme.
Government will be contributing €300,000 each year towards the administration of the newly Foundation of Affordable Housing.
Properties that were rented for at least 10 years at rates established by the Housing Authority:
- 50% tax reduction on the first €200,000 on the sale or purchase of such properties.
- When such properties are sold to the tenants, no tax will be due on the sale and purchase.
- If the property was rented out between 3-10 years at established rates, when sold to the tenants, a tax reduction of 50% will apply on sale and purchase.

Subsidy of up to €25,000 for structural renovation on properties pre-June 1995 rents.
A national skills survey will be conducted to help the setting of appropriate policies.
€2 million will be allocated towards training programmes for the upskilling of workforce.
An annual €150 in-work benefit will be given to persons working ‘atypical’ hours (such as nights and weekends) in these sectors: hospitality, administrative services, manufacturing, and transport.
The 15% tax rate on overtime will be taxed on the first €10,000 overtime.
Starting from this year, within 5 years the pension income will no longer be considered as income for income tax purposes. This applies for pensioners who continue to work.
The current 15% part-time tax rate will be reduced to 10%.
The work-in benefit to working parents will be extended as follows:
- Couples where both work – income limit of € 50,000 per year
- Couples where one parent works – income limit of € 35,000 per year
- Single working parents – the income limit of € 35,000 per year

The tax refunds in 2022 will be €60-€140 depending on the income. The is an increase over previous years.
Free childcare will be extended to persons working on nights, weekends, and shifts.
The government will be consulting with the MCESD for implementation for the EU directive of parental leave and work life balance.
There will be an online portal containing employment contracts templates containing all the minimum requirements.
The COLA adjustment for 2022 will be €1.75/week.
Students’ stipends will increase by 10%. Students are allowed to work up to 25 hours/week and continue receiving stipend.
The rent subsidy incentives will be extended to a larger number of businesses.
Group of companies who were impacted by the COVID19 pandemic and who have unabsorbed or unutilised capital allowances for the years 2020 and 2021 will be eligible to utilise these capital allowances in companies of the same group that have remained sustainable thus reducing the tax liability for basis year 2021 (Year of Assessment 2022).
With effect from next year, Malta Enterprise will introduce a scheme whereby profits invested in eligible projects in the same business and/or in other business will receive a tax benefit if the investment is carried out within 2 years from 1 January 2022.
More fiscal incentives will be introduced to encourage investment in the innovative, ecological, and digital sectors.
More schemes will be introduced to provide financial assistance similar to Change to Grow, Smart & Sustainable Investment and ReStart.
Reform in the Remission of Interest and Penalties – this will only be available to taxpayers who are genuinely in fiscal and economic difficulties in line with the proviso of Rule 2 of Legal Notice 361 of 2013 (SL 372.26).
With effect from 1 June 2022, the interest rate for tax and VAT shall be 7.2% per year.
Assistance will be given to aircraft maintenance companies for their infrastructural needs.
With the introduction of the Exclusive Economic Zone, new opportunities can be explored on the shores such as renewable energy in the sea.
The Seed Fund will be created with the collaboration of Malta Enterprise and the University of Malta to assist financially and encourage researchers and entrepreneurs with innovative ideas.
The Start-Up Residence Permit will be introduced to encourage foreign investment from Third Country nationals – this will be subject to certain conditions and criteria.
The SME Tailored Facility by the Malta Development Bank will be extended to the small and medium businesses in the private sector who wish to diversify their operations with ecological and sustainable projects
Malta Enterprise will set up the Blue Med Hub to attract start-ups and small and medium sized businesses – both local and foreign.
The reduction of the stamp duty from 5% to 1.5% on the transfer of family businesses inter-vivos to the children and younger generations will once again be extended.
License for Building Contractors will be introduced with a possibility of an introduction of incentives in this sector.
The transfer of Immovable property built 20 years ago and which has been vacant for a period of more than 7 years, immovable property situated in areas marked as UCA and newly built immovable property constructed in the traditional Maltese architectural vernacular styled will be exempt from capital gains tax and duty on documents on the first Euro 750,000 of the value of the immovable property. This measure will be extended to immovable property which is currently on Promise of Sale. This measure will come into effect from 12 October 2021 for a period of 3 years.
In addition, first time buyers of the above-mentioned immovable properties will also be given a grant of Euro 15,000. First time buyers who purchase such immovable properties in Gozo will be give a grant of Euro 30,000. This measure will come into effect from 12 October 2021 for a period of 3 years.
Owners of such immovable property will be granted a refund of the VAT paid on the first Euro 300,000 spent on the restoration of these immovable properties (up to a maximum of Euro 54,000 VAT refund). This measure will come into effect from 12 October 2021 and will encompass also restoration works which are already underway.
The reduction in duty on documents paid by first time buyers, second time buyers and individuals purchasing immovable property situated in Gozo will be extended for another year.
A project will be launched to help Maltese companies invest in environmentally sustainable projects/investments. This project will help Maltese companies assess the environmental impact of their investments. This information will be publicly available and will encourage investors to invest in companies which are socially and environmentally responsible.
Public entities and private individuals will be encouraged to invest in green and environmentally friendly projects.
Schemes to encourage the purchase of solar panels, solar water heaters, heat pumps, reverse osmosis and the restoration of private residential wells will be extended.
Schemes will be introduced to help sports and voluntary organisations to be more energy efficient.
Parents-to-be are to receive a starter kit with sustainable products for their new-born.
Public transport around Malta and Gozo will be free of charge for Maltese and Gozitans and individuals residing on the Maltese Islands as from 1^st October 2022.
The grant with respect to a purchase of an electrical car or a plug-in hybrid will increase to €11,000 (up to a maximum of €12,000 if the Scrappage Scheme for the older vehicle is used).
The grant with respect to the Scrappage Scheme related to motor vehicles which pollute Gozo will increase to €2,000.
The existing schemes (mainly exemption from the payment of road licence and relief from registration tax) with respect to the purchase of electrical motor vehicles and plug in hybrids will be extended for a period of 5 years from the date of registration.
The grant equivalent to the VAT paid on the acquisition of bicycles and electric bikes will remain in existence, as will schemes for scooters, pedelecs and other such forms of transport.
Trucks, buses and minibuses which are equipped with a photovoltaic panel will be given a grant of €900.
The introduction of a new system for calculating electricity bills. Through this system, consumers shall be able to save cheaper units which are not used and utilise them during periods of higher consumption. The new system shall not affect the feed-in tariffs nor the Eco-Reduction.
The introduction of incentives whereby landowners will be able to enter into agreements with farmers who wish to cultivate their land for organic farming.
A proposed grant of a maximum of €8,000 to incentivise carbon farming and the effective use of agricultural land whereby eligible farmers owning unutilised agricultural land may transform it into agroforestry systems based on fruit trees. Further details will be issued upon the publication of the scheme.
Assistance to farmers to improve the quality of their products particularly to achieve standard certification according to market requirements.
The income tax rate for artists applicable as of basis year 2022 shall be 7.5% and a new mechanism shall be introduced whereby artists’ income will be established over an average of 3 years.
The establishment of two guarantee funds: one amounting to €1 million allowing producers and promoters of artistic events to recover costs that cannot be recuperated due to unexpected restrictions on artistic events and another fund of €2 million as assistance for seats that could not be sold due to such unexpected restrictions.
Further schemes led by the Malta Arts Council shall also be introduced to the arts industry with independent artistic projects.
The development of a digital system for legal aid whereby eligible citizens in terms of the law are able to apply for such aid online or through local services hubs.

Disclaimer

The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.