04 October 2006

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Business Today

Euro panic: Time running out to spend black money

Karl Schembri

With an estimated Lm200 million in undeclared cash believed to be hidden in the vaults and under the mattresses of the Maltese away from the watchful eyes of the country’s economic and fiscal watchdogs, the clock is ticking for all those who have been piling black money in Maltese currency as Malta gears up for the switch to the Euro.
European countries that have already joined the Eurozone had seen sudden unusual spending habits forming ahead of the changeover to the single currency, with massive sums of untaxed cash suddenly on the move across the union.
It remains to be seen if the Maltese government will use the changeover as an opportunity to crack down on tax fraud, as the possibility of an amnesty is floated by stockbrokers and observers in a bid to channel these millions into meaningful investment.
“It would be advisable to start taking action now to enable undeclared and probably barren funds to become active. The moral aspect apart, the government will have to offer a scheme similar to that offered to those who held undeclared foreign assets,” says former Finance Minister Lino Spiteri, who however advocates a qualified amnesty. “It would also be advisable to consider financial products which at least could absorb part of the funds which are thereby attracted into the active economy,” Spiteri added. “Otherwise there could be a hump in demand which would have an undesirable impact on asset classes, like property and quoted shares.”
The chairman of Crystal Finance Investments and former Mid-Med Bank chairman Alfred Mifsud said he was in principle against an amnesty scheme but given previous amnesties this, if qualified to prevent property speculation, would be a legitimate concession.
“In past years there were amnesties forgiving people on some three different laws – tax evasion, exchange control and probably social security,” Mifsud said. “So one should consider giving an amnesty for people who have maybe broken one law. One should however be on his guard and make sure, for example, that such money is invested in the long term.”
A spokesman for GlobalCapital admitted that a lot of cash at hand points at the need of an amnesty that could be engineered to channel money that is sensible for the overall economy.
“It is clear that significant sums of money are held at home,” the spokesman said. “In fact, last Central Bank of Malta statistics indicate there is some Lm490 million in circulation. This, assuming a population of 400,000, in fact translates to an astounding Lm 1,225 held at home per Maltese person. An ‘unconditional’ amnesty might not be the best approach, but we would support ‘measured’ initiatives which, apart from the obvious fact that they provide an opportunity to regularise one’s position, would also add tremendous benefit to the local economy. We have seen that past initiatives, such as the Investment Registration Scheme, have proved to be successful for both the government and the investor. What is absolutely crucial is that such an initiative is carefully thought through and well planned.”
Prudent investors are advised to spread their investment risk by investing in a diversified investment portfolio that not only covers different investment products but also in diversified investment currency.
“Naturally, as we approach Euro changeover date we expect there to be a greater demand for Euro-denominated investments or solutions and in this respect GlobalCapital are already positioned to offer a one stop service for our clients seeking to invest in Euro,” the GlobalCapital spokesman said. “In fact, some of our Lira products have been purposely structured so that they will automatically convert to Euro on changeover date, thus avoiding the need for investors to rush to the banks to convert their funds to Euro.”


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