10 18 January 2001
The recipe for a sane economy
There are some principles which never seem to change.
We know all too well that the state of the economy can never prosper if inflation is up and the budget deficit continues to expand.
More so if government spending and tax revenue are in decline.
The trick is not only to redress these trends but to find ways of galvanising more consumer spending which would lead to expansion in the economy.
Indicators of growth in the economy are indirectly linked to consumer spending and employment figures.
A decline in interest rates in Malta has contributed to catalysing more spending power.
In June 1998 discount rates stood at 4.95%, while in September 2000 they stood at 4.75%. Nevertheless, there are indicators in 1999 that GDP rose to 4.6 per cent from its depressed level of 3.8 in 1998.
Indicators of wealth took a similar upward trend: mobile phones from 24,000 to 44,314, Internet subscription from 24,700 to 25.400, satellite dishes from 2,600 to 3.400, telephone lines from 197,000 to 199,000 and personal computers from 60,000 to 70,000. The list goes on.
If we look at household amenities, eating out, travel, entertainment, cars we get the feeling that things are on the up. But such feel-good factors tend to be erroneous.
What is not, is when government policies are bent on liberalisation, control of public spending, trimming public sector growth, fighting tax evasion and narrowing the yearly deficit.
The perception is that all this is being tackled and enforces the belief that the economy is on the right track.
Fringe benefits or tax evasion
There was once a definition of middle class that was rather specific. But today the middle class encompasses a rather wider segment of society. To argue that all the middle class will be hit by fringe benefits is stating that all the middle classes are tax evaders. The fringe benefits which allow for extravagant villas and homes, luxury cars and yachts to find refuge under a fringe benefit notion is surely nothing to do with the middle class.
And in this hysteria to support blatant tax evasion and shady forms of fringe benefits some journalists have argued that this is wrong because it taxes the middle classes and not the upper classes.
The argument is again wrong for two reasons. The first is that all fringe benefits are in most cases an opportunity for tax evasion. The second is that the majority of the middle class does not benefit from fringe benefits and the third consideration is that the fringe benefit linked to certain activities will have an impact on the so-called upper middle class. Having said this, we are in agreement with the sceptics on one point of view, tax evasion should not stop at someone's door, but must be an all rounder.