The legacy of a Burmarrad whiz kid

With the budget 2021 set to be the second major challenge for prime minister Robert Abela – following the COBID-19 pandemic – few doubt that he needs to conjure a rabbit out of the hat.

With over €1billion in deficit and a national debt to GDP ratio of about 60%, there is little room for any Keynesian largesse. Yet, as the news of Joseph Muscat’s resignation sinks in the minds of the party faithful, one cannot but sing his praises considering that during his seven-year tenure as prime minister he succeeded to turn an annual state deficit into a respectable surplus.

Economists have consumed reams of paper to analyse how his stewardship succeeded to bring such prosperity in such a short term. Granted that what appeared camouflaged as virtuous may have eluded the party faithful and kindled an endless crusade for truth by the Iron Lady from Bidnija – a journalist who never minced or sugared her words. Basing her writings on wellfounded research (and cheeky informants who hid their hands and used her platform), she poisoned the baptismal font.

The so called “kitchen cabinet” formed a coterie of a brilliant gang of Machiavelli schemers (some from Opposition benches call them crooks) who succeeded to sail close to the wind thereby generating affluence.

Unemployment and burgeoning tourism figures were the daily fare on State TV showing how Malta has beaten larger EU members in daily affluence to become the Switzerland in the Med.  Regular increases in minimum wage, pensioners bonus and children allowances endeared the faithful in no uncertain way.  The results of two general elections with record high results for the Muscat “l-Aqwa Zmien” troupe sealed the death knell of the Opposition party - which was sent to run for shelter and indulge in fierce bickering amongst themselves.

The bonanza party did not last for long and turned ugly when strong demonstrations paraded the streets of Valletta last November chanting for the resignation of Joseph Muscat and his soup kitchen.  Four months later, enter the act one, scene one of an intrepid Covid 19 pandemic.

Certainly the first total shutdown in mid-March was a bolt out of the blue… like a tempest in mid-August summer morning that shattered the artificial affluence and sheared the thin veneer of the propaganda machine at Mile End.  The agonizing months of the shutdown had the effect of piercing the veil of an artificial bubble that was not based on external exports but partly on the combined results of a runaway building boom, an increase in expatriate workers who boosted domestic demand, millions from sale of passports in a deal with an exclusive concessionaire who pocketed commission on total passport revenue and got free all-expenses paid patronage of Joseph Muscat chairing every international conference.

Bank interest was low and so was inflation which fanned the fire of speculation in property deals.  The proverbial “kitchen cabinet” (peevishly exposed in testimony during the Caruana Galizia murder inquiry by Evarist Bartolo and Edward Scicluna) stirred their stew in a dark cauldron of goodies.  A well-oiled propaganda machine waxed poetic about the explosion of tourist arrivals - mainly composed of the lower end variant, a.k.a. low cost airlines (sun, sea and cheap beer variety - housed in Airbnb accommodation).

Rents had shot sky high and as social housing was never given priority this resulted in protests from lower-income groups.  All this culminated in various demands from Employers Association, Teachers unions, and other unions which all chanted that the economy has entered in a cul de sac and the government needs to bail out the long suffering players caught with zero income (or else face thousands of unemployed).  Retail sales and income from hotels dropped considerably.

In their quest to recoup losses faced during the lockdown, operators let out a sigh of relief when prime minister Robert Abela, announced an easing of regulations to allow restaurants to open under certain conditions.  Castille was offering inter Alia a cash injection of €44 million by way of €100 vouchers (five coupons of €20 each distributed free to residents over 16 years of age) to be spent in catering, hotels and certain shops.

The Chamber of Commerce insisted that businesses should be given a clear and safe direction on the way forward in a “responsible and structured manner”.   In its own words, the Chamber remarked that “At the same time the country ought to continue to give due weight to the nation’s economic needs as well as the physical and mental health of our people”.

These rules will reduce risks regarding transmission of infection but of course reduces the number of covers by half.  Tables have to be limited to groups of not more than six diners from the same household. Other conditions include disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets.  For outdoor dining (which is the preferred option) again, same conditions for distance and family groups apply and no smoking is allowed.

Both the Chamber of Commerce and Employers Association suggested a fiscal reform to assist the retail, hotels, manufacturers and travel sectors. They expressed their conviction that the cost of living can only be harnessed once vat is reduced. Certainly the issue of vouchers was a knee-jerk reaction since all purchases were subject to 18% vat plus a small commission charged to retailers to cash them. The winter approaches and quoting Eurostat, Malta experienced the highest monthly increase in inflation across the EU since last April.

Yet Government preferred a populist solution so rather than reduce tax, it opted to issue cash vouchers, furlough workers and guarantee cash loans to entities in distress.  An alternative route to help businesses is to achieve parity in vat rates by reducing them to match those charged in other Med countries.

It is no secret that Malta was one of the EU countries that registered the highest drop in the total retail trade volume over the past 12 months. This article explains how for example tax evasion (which is the highest in the EU) can be mitigated by lowering vat to 7% and carry out on the spot inspections by Tax Compliance Unit.

One hopes that with monitoring of members by MHRA , this will result in cheaper meals.  Luxembourg charges only 3% on food while Germany’s stimulus package includes a cut in VAT - for regular goods to 16% from 19% and for food and some other goods to 5% from 7% from July 1 until December 31.

One salutes the prowess demonstrated by the Burmarrad guru and hopes that the 2021 budget designed by a reformed “kitchen cabinet” will introduce a fiscal reform in time for the bleak winter months ahead.