 You
will be forgiven if you think that after the announcement of the
2008 budget both political parties are being accused of promising
too much. The Opposition is keen to launch its own promises based on
four additional proposals whose true financial cost has been put in
doubt.
These included a halving of the surcharge, abolishing tax on
overtime work, giving back holidays that fall on weekends and
reaching a higher GDP growth of 4 to 6 percent. Surely the most
contentious one being the abolishing of tax on overtime. Curiously
this was also a key economic reform introduced by President Nicolas
Sarkozy in October this year. In his opinion this measure could
stimulate growth as rules came into force removing tax and social
charges from overtime hours. As can be expected the French reform is
intended to encourage workers to work longer hours, and companies to
make more work available.
 Last
month, Sarkozy, a high-speed mover in the French presidency has
decreed that all hours worked beyond the statutory 35 hours in the
week will be free of charges for both employer and employee. It goes
without saying that this measure on its own and without the
necessary safeguards will open the floodgates for abuse. On the
other hand in France as in Malta the economy is based on SMEs
employing few workers. In this category once the tax exemption is in
place the take home pay will be augmented and thus open the scope
for better productivity.
Back to Malta the proposal by the opposition to cut tax on overtime
if elected next year has been inundated with criticism from leading
economists, even those of left wing tendencies. The proposal has
been evaluated by the opposition to reduce Government revenue by Lm2
million annually. This is based on what the Prime Minister said in
the Budget speech that declared earnings from overtime stood at Lm12
million. Unsurprisingly the opposition motto is to tax consumption
rather than work. Ironically this fits in squarely with removal of
tax on overtime.
 Surveys
also show that overtime was done mostly by lower earners and while
abuse could be anywhere, yet in economic terms it would turn the
wheel better as has been the guiding principle in the French
Republic.
To be fair, once the measure is introduced then we also have to
compensate the high earners who habitually are not entitled to
overtime. Therefore the measure needs fuller consultation with the
constituted bodies in order not to play havoc on industrial
relations and existing collective agreements. Yet it may be worth a
try. It is not perfect and being a radical move more needs to be put
into the equation presumably compensating part-timers who are
currently charged 15% tax on earnings up to Lm3,000 annually.
Again the idea of lowering tax on production has also been clearly
manifested in the budget typically reducing income tax for the
second consecutive year. It is here that the plot thickens. In
retrospect the Prime Minister gave a different interpretation when
quizzed about the cost of implementing this measure. He had
calculated that the cost of Labour’s proposal in foregone tax would
be Lm12 million roughly working out as 15% on a total earnings of
Lm80 million. There seems to be a massive dichotomy here. Ideally,
we can be given an official estimate by the National Statistics
Office. Based on an official declaration one can better evaluate the
loss of tax for the Exchequer.
 Yet
one cannot completely underrate the efficacy of such a tool to boost
our level of competitiveness. This year has seen strong product
demand with many companies in the export arena paying record amounts
of overtime. For production workers, that usually means time and a
half or, in some cases, double pay.
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