Labours tax party - economists
and financial experts have their say
The Labour Partys proposed tax party got off to a
shaky start with doubts being shed on the desirability of the proposal
Normally the public and the business community welcomes tax rebates,
but it would seem these proposals are finding themselves on a slippery
There are two major concerns: will the proposals stimulate the economy
and will they endanger the governments fiscal position?
Everyone will enjoy those extra few Liri to buy some early summer clothes
or, if you are better paid, possibly some new electronic gadget, but
will the mini consumption boom really have a significant impact on the
If Labour is elected, we can immediately expect the doom and gloom that
is associated with Labour parties elected to power and, in this case,
more so as Malta would have missed the EU boat.
Maltas entry into the EU would put Malta on the investment map
and the economy is expected to enjoy a swift step forward. Contrarily,
Malta remaining out of the EU is likely to deflate business enthusiasm
and discourage enterprise.
Several notaries and estate agents have told The Malta Financial and
Business Times that in the past weeks quite a few preliminary agreements
for the purchase of property have been signed on the condition that
the PN is elected, expecting the consequential positive impacts of EU
membership. These agreements would all fall immediately should Labour
be elected and it is not difficult to predict that other sectors would
be adversely affected too.
While this paper could not find any economists or financial commentators
who greeted Labours new proposals, few wanted to comment at all.
Unfortunately our socio-political scene is such that academics, economists
and financial experts are reluctant to say anything to offend the political
parties at this stage of the election campaign. Several university professors
and lecturers declined to comment leaving Maltas public with a
dearth of opinion on what should be a topic that interests us all.
Economist Karmenu Farrugia told The Malta Financial and Business Times
that the Lm25 million would have been better spent on infrastructure,
whether social or physical.
Farrugia said he did not expect the measures being suggested by Labour
would have a significant impact on Maltas economy, "there
will be an impact, but we economists speak about the impacts of increased
spending in Malta in terms of what we call 50/50. Fifty percent of every
Lm1 spent goes on imported goods, so does not constitute a direct stimulus
to the economy."
Farrugia sees the proposals made by Labour Leader Alfred Sant as being
more political that economic, and one where the timing looks more like
a vote catching exercise.
"I do not expect the impacts being proposed by the Labour Party
to be effective enough to solve Maltas structural economic problems,
it would have been better to invest the money, so that the effects would
be more long-term."
"I would rather have seen the Lm25 million going on improved roads,
investment in a better environment, or technical training for people,"
Farrugia does, however, fully agree with Labour on one point and said:
"At the same time, although few will agree with me, I agree with
a wage freeze for Malta. That would have a direct impact on improving
University banking and finance lecturer Philip Beatie told The Malta
Financial and Business Times he believes in: "tax cuts for businesses
as an important weapon to stimulate domestic private sector investment."
But added, "given the concrete reality of our current fiscal system,
it is probable that more emphasis on variables other than corporate
taxation ought to be considered.
"I am referring specifically to the expenses industry has to bear
in terms of rates, fuel and electricity, telecommunications charges,
haulage etc which are detrimental to local competitiveness.
"In terms of tax cuts concerning personal income tax payments,
I feel the current level of personal income is not unduly high. Hence,
I would tread more warily in such a direction, although the intention
- if there is one here - is clearly to boost consumption spending and,
indirectly private sector revenues.
However Beattie is concerned about Labours proposals vis a vis
the impacts on Maltas public finances: "Given the state of
Malta's current public finances, a great deal of thought needs to go
into promoting tax reductions - both business and personal. It is hoped
that a basic minimum of econometric and scenario testing would have
been conducted prior to any concrete policy formulations being made."
Economists Lino Briguglio and Gordon Cordina preferred not to comment
on the issue, with Cordina telling The Malta Financial and Business
Times he "would prefer not to take part in this essentially partisan
political, and definitely not economic, discussion. I believe that the
major points in this regard have already been tackled in the various
responses to this issue."
The Governor of the Central Bank of Malta, Michael C Bonello, also preferred
not to comment on the matter.