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This government is no longer ossified but is taking the courageous decisions
There seems to be a positive feeling in the air of late.
The oracle at Castile is foretelling a brighter future and the political omens look promising. Just to mention the courageous decision by Dr Gonzi to terminate early the spring hunting season is a monumental swing underpinning an assertive government.
At a recent electronic poll run by Times more than 88 percent supported this landmark decision. It was decided to cut it short after several repeated incidents of shooting on protected birds.
This manifests a pivotal change in the old perception that the government is ossified and is afraid of taking stiff decisions .More good news on the economic front when one reads that the visible trade gap for the first two months of this year has narrowed and the inflation rate is down to 2.1 per cent. The national debt, which at the end of last year stood at 66.5 per cent of GDP, is expected to drop to 65.9 per cent this year. Naturally we aim to go down below 60 per cent once privatisation deals bear fruit.
More global names such as HSBC’s call centre, an expanded De La Rue and ST Microelectronics and recently the enhanced Lufthansa Technik project, not to omit large pharmaceuticals such as Actavis are an inevitable sign that Malta is no longer hidden under the radar. This is not to mention the substantial investment in telecoms by the oil rich Gulf Arab States in Smart City.
Opposition laments this may be one swallow in a pre-election summer but coupled with Commission acceptance to qualify to enter the Eurozone then things start to appear rosy. Can we ever ignore the quality strides in health service? Forgetting for a moment the spurious over spending in commissioning and erecting Mater Dei hospital. Surely one cannot blame the government when FMS appointed external auditors in a public tender specifically to monitor and control alleged cost overruns on the Skanska contract. One may have to revisit this chapter as more details on historical payments are revealed when the Auditor General completes his report subsequent to the handing over date. For sure chicks may come home to roost and it is only proper that citizens expect retribution if any abuse and sleaze is uncovered when the external auditor ‘s final reports are published.
Be it as it may one cannot undervalue the majesty of a modern state- of- the art hospital. Hopefully this will slowly entice back a flock of doctors who have left the service to improve their careers abroad. On this health sector, the Prime Minister observed at a pre-budget session that the price of medicines was also increasing at astronomical rates while each medical student cost the government Lm35,000 from the moment one entered university to the day one graduated.
But reverting to the good news, unemployment is down and employers in the catering and construction industry are complaining that they are not finding enough skilled people for the jobs that they have.
More heart warming omens abound. The Commission said that the Maltese economy and its public financial situation has made remarkable progress in the last three years. The Commission’s convergence report states that Malta’s structural budget deficit at the end of last year stood at 2.6 per cent of GDP and is expected to fall to about 2.1 per cent this year. This is great stuff. The structural deficit has been reduced drastically to below three per cent of GDP, from a high level of 10 per cent in 2003.
Inflation has been controlled and the debt level is also decreasing. Now add to that the open consultations by Dr Gonzi on the pre-budget talks and one is thankful for the openness in the government ‘s to woo the electorate.
Just consider the welcome decision to turn Xaghra L-Hamra incorporating areas such as Gebel Ciantar and Fomm ir-Rih into a massive public park linked with the noble decision to restore to farmers their tenancy rights which were previously denied because of the ill fated golf course project.
Din l-Art Helwa president Martin Galea welcomed the government’s decision showing that it was conscious of the environment’s importance to Malta.
But more tough measures lie ahead. The prime minister wishes to paint our taxes green. The brilliant idea is now to smoothen down direct taxes and replace them with a new code based on environmental impact.
Last year a task force was entrusted with executing this reform and one hopes its recommendations will feature in the coming budget. Tax is always an emotive issue, and could prove one of the battleground issues at the next election. The textbook approach tells us that oppressive taxation wouldn’t be necessary unless we labour under an over burdened welfare state; it’s useless opposing the former while “understanding” the latter. It goes without saying that Malta’s complicated tax system needs an overhaul, not minor fixes although the recent agreement with EU on international holding companies is a landmark achievement. The larger role the tax system plays in many of the political dramas has been and is expected to dominate the daily headlines.
By sheer contrast, the ex-Communist countries that joined the EU have lost no time to reduce taxes and are registering higher GDP growth rates than ours. Typically Cyprus charges only ten per cent corporate tax. Tax competition is healthy as it tends to keep inflation scares lower, which creates pressure for less wasteful and therefore more efficient use of public funds. This may be another reason, albeit not the only one why Malta seems to be caught in a time warp as it misses its share of FDI that is targeting EU tigers such as Slovenia.
This EU tiger is creaming off the bulk of inward investment from multinationals.
In a world which generally espouses free cross-border trade and investment, multinationals are free to structure and operate their businesses as they see fit, generally in a manner that makes most sense from a tax and logistics point of view. Prima facie our corporate tax rate is one of the highest worldwide - higher even than the rate in so called high tax countries such as France and U.K.
But this needs explaining. Again politicians are fond to circulate the story that companies rarely pay the full 35% tax rate. This may be due to various untapped loopholes. Naturally it is difficult to make sense of this because we don’t know whether these companies paid no tax because of loopholes or whether they paid no tax because they were losing money. Certainly, more aggressive marketing is needed to advise foreigners that our corporate tax is fully imputed to shareholders upon declaration of dividends. A veritable proof is the many multinationals which are benefiting from our favourable tax imputation code. But wouldn’t it be a better idea if our politicians are more adventurous in reforming the tax regime within the confines of EU laws? The answer seems to be blowing in the wind. The pre-budget discussion boldly suggests a changeover from direct taxation to more environmental related taxes. The worn out cliché always reminds us that Government wants to take the bull by its horns on reforming the ‘holy cow’ of the public sector. This drains 35 per cent of our national resources. Public sector employees can no longer expect to be cocooned in fantasy world where the concept of value for money is ephemeral. The motion “export or die” which is the mantra for the productive sector is not wired-in their ram. Delays to rigorously bench mark the public sector are intolerable while the productive sector continues to grudgingly foot the bill. Perhaps colonial times showered us with bad habits which die hard.
If productivity improves and there will be less reliance on expensive tendering for government work one could hope for a one per cent cut in Vat next year.
To further generate wealth the 2008 budget can provide more tangible incentives to business to create new economic activities based on additional value-added.
Dr Gonzi said it was time for a major campaign to fight unwanted bureaucracy and red tape, adding that the problem is like a cancer that needs constant attention while it silently spreads in the system. Perhaps now is the time to act boldly when the Oracle at Castille shows the political will is ready and able to reform and to enhance effectiveness in modern government boasting of an ITC breakthrough .
The author is a partner in Pkf an audit and business advisory firm:
gmm@pkfmalta .com |
