Editorial | Hastening the recovery process

Tax deferrals, bank loan moratoria and Malta Development Bank loans provided businesses with much-needed reprieve to get through the COVID-19 pandemic.

However, this also means that they are now saddled with big debts that are now reaching a stage where they have to start being repaid.

In its budget proposals last year, the Chamber of SMEs had remarked how businesses entered 2021 with very big debts, which continued to accumulate. And although demand has been picking up it is still lower than pre-pandemic levels and very inconsistent.

The situation appears rosier in 2022 but it also depends on how the tourism sector will perform.

The chamber had proposed the widening of the tax brackets to encourage businesses and leave them with more profits in hand to strengthen their fragile position. The lobby group argued that this could help initiate a faster recovery.

In its Budget 2022 proposals the Chamber of SMEs proposed extending the 25% tax bracket to profits up to €100,000.

Although not implemented in the budget, the Labour Party has latched on to the proposal and is pledging in its election manifesto to lower the corporate tax rate to 25% from 35% on the first €250,000 in profits.

The ambitious proposal could save businesses up to €25,000 per year, which they could reinvest in their operations and human resources. The PL pledge is to be commended.

If implemented in its entirety from the next budget, businesses will be left with a substantial chunk of profits they can use to hasten the recovery process throughout 2023.

And given the generous capping being proposed, most small and medium businesses would benefit from it.

The reduction in the corporate tax is part of a wider Labour Party proposal to also widen the tax-free bracket for personal taxes.

These measures will ensure businesses and people are left with more money in their pockets, an essential component to encourage domestic consumption and economic growth.

Finance Minister Clyde Caruana has said that the measures would be implemented gradually over the five years of the next legislature to safeguard public finances.

While personal tax cuts should be phased in, this leader believes that the lowering of the corporate tax rate at one go could provide a strong stimulus in the next two years that are crucial for the recovery process.

Government is banking on increased economic activity to generate enough wealth that will allow it to finance its electoral programme.

The strategy worked well before the pandemic hit but the lingering uncertainty as a result of COVID-19; the Ukraine crisis and Brexit may require some adjusting.

Despite the positive economic outlook for 2022 by the Central Bank of Malta and the European Commission, nothing can be taken for granted.

Creating a pro-business environment remains crucial since it helps companies believe they can grow with peace of mind and in the process create jobs and wealth.

Within this context, one cannot ignore the country’s greylisting by the Financial Action Task Force. Although the direct economic impact is minimal so far, greylisting has caused headaches in the financial services sector.

The government must do all it can to get the country off the greylist without trying to appear whiter than the pope.