Fabian Demicoli

Eco tax to catalyse highest RPI rise this year

The upcoming eco tax on a wide range of
products is expected to affect the Maltese economy with the highest increase in
the Retail Price Index this year.

While Prime Minister Lawrence Gonzi
reassures businesses and consumers that the new tax “would only have a minimal
effect of 0.84 of a percentage point on the Retail Price Index”, this would
still mean the highest increase to be registered this year after a brief drop
registered last May.

According to the National Statistics Office, RPI
increased slightly in February over January by 0.03. In March there was a 0.43
increase over the previous month, rising to another 0.66 increase in April, and
going down by 0.19 in May.
If the prime minister’s estimates are correct, a
0.84 rise in the RPI would be the highest increase this year.
Despite, the
drop, the retail price registered last May was still 2.40 more than that
registered in May 2003, putting a 0.84 increase as much as a third of the rise
registered in one year.
The plan is already under fire by the General
Retailers and Traders’ Association (GRTU) and the Federation of Industry, who
maintain that the taxes are untimely and would adversely affect consumers’
purchasing power.
“We’re inundated with taxes that are supposed to go for the
environment, this is not the time to impose new taxes,” GRTU Director General
Vince Farrugia said. “This has nothing to do with packaging and the government
just wants to add to the existing tax burdens, over and above VAT. If the
government was really interested in collecting environmental contributions, then
it should modernise existing taxes and remove taxes on those products that are
environmentally friendly.”
The taxes will come at a time when the economy is
slumbering and VAT has just been increased from 15 to 18 per cent.
The GRTU
Trade Fair Survey showed that 58 per cent of trade fair exhibitors interviewed
reported a fall in sales turnover when compared to last year. Of these, 52 per
cent claimed that they had a drop of over 20 per cent in their sales, while only
14 per cent had sales improvement over last year’s. Fifty-seven per cent said
they did worse than expected.
Economics Professor Edward Scicluna warns that
the new taxes will inevitably lead not only to less spending by consumers but it
also reduces the overall economic activity, despite Gonzi’s reassurances that
the taxes “would only have a minimal effect of 0.84 of a percentage point on the
Retail Price Index”.
“0.84 per cent on the Retail Price Index is a lot,” says
Prof. Scicluna, “not so much because it increases inflation, as many people
wrongly think, but because increased taxes actually lead to deflation. The
average wage earner’s consumption expenditure is going to be hit by about just
under one per cent. The negative multiplier effect of the cut in one’s income is
definitely deflationary. It reduces economic activity. Private consumer
expenditure which is a major component of GDP is reduced by a multiple of that
percentage point. Unless of course it is not an income compensated price change,
where the proceeds (that is revenue) are given all back to the
taxpayers.
“These taxes definitely come at the wrong time. It’s very bad to
introduce them at this point in time when no businessman or consumer affords to
hear there will be more taxes imposed. It would be an ideal situation for a
civilised and industrialised country to have eco taxes, in order to discourage
polluters. If the government was only interested in promoting eco-friendly
consumption then it would incentivise consumers to buy environmentally friendly
products and dissuade them from buying the ‘bad’ products. This could be done by
an appropriate change in the relative price ratios, keeping the overall price
index unaffected.”
The government plans to garner revenue of around Lm4
million annually from the new taxes, which will serve to finance
Wasteserv.

 

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