Press-ganged

Since the middle `90s, with the introduction of VAT, many people in self-employment began to feel they had become the children of a lesser god. Despite the snide comments of media columnists, it is not true that, for many of them, the real problem was that, finally, all their tax evasion dodges were going to be shot to pieces.

As enough data from the EU and elsewhere show, VAT is subject to a higher evasion rate than any other tax, including income tax. This is camouflaged by the strong revenue streams to the public budget that VAT provides. No wonder, given its across-the-board sweep and hefty tax rates which have become the norm across most of Europe... However, that is still not the point.

With VAT came a decline in the fortunes of local business. Whether there was a causal connection or not, some future impartial academic analyst will have to determine. But it happened. And the self-employed sector was derailed. Since 1987, it had been pushed by the Fenech Adami administration to glory in the bliss of import liberalisation and the consumption binges of the local market.

The evidence is that we were consuming much more than we were effectively producing. During its short administration, post-1996, Labour tried to ease the pain of the inevitable adjustment, partly by replacing VAT with a less onerous consumption tax. Sure enough, pro-PN businessmen, media pundits and partisan spokesmen were mobilised to denounce the changes. These were too complex, too weird. There was outraged shock that eight months passed before VAT was replaced; the transition to VAT pre-1996 had taken more than three years.

Yet by early spring 1998, there were signs of a recovery, soon to be busted by the political sabotage that then ensued.

In the campaigning that followed, the PN projected the gimmick of capital refunds under a rewired VAT system as the measure that would once again give life to the self-employed. Many bought that line. Since those heady days, I still have to meet one business person who would spontaneously refer to refunds as having in any way bolstered his/her affairs.

Meanwhile, the `new` Fenech Adami administration again tried its old trick of boosting the economy through government spending. This time, it had to resort to massive increases in taxation in order to be able to keep the wheel turning. The self employed were hit in two ways: directly through the increasing burden of tax on their operations; while the same burden negatively affected private consumption growth.

On top of this came the overriding thrust of the administration to get Malta into the EU at all costs. Because of the tunnel vision that defined this project, the interests of the self-employed were given minimal attention. The old rhetoric about how beneficial import liberalisation and `Europe` are to the well-being of small business has been assumed strong enough to glue together most small self-employed business people around the aims of the present administration.

Occasionally, the approach was brazen. I was present at last autumn`s annual general conference of the GRTU when the prime minister assured his audience that transitional `safeguards` about free movement of workers following EU membership, obtained by the government - such as they were - applied to their operations. Not true.

As of day one of any membership scenario, the full rules of free movement under the EU acquis would apply to self-employed persons coming from all EU countries. Once it had to acknowledge this, the government`s fall-back position became that small business entrepreneurs from EU member-states had little incentive to come and work in Malta. They did not know the Maltese language and would have to satisfy all local licensing laws anyway.

When self-employed people still expressed worry at what was going on, the parliamentary secretary in charge of their sector piped up with the view that, anyway, under EU rules there would be no discrimination against Maltese small business people in Malta. He further emphasised that, under the membership scenario, whatever Brussels decided, Maltese ministers would have to automatically accept.

Thus, many self-employed now feel that they have been press-ganged into a project that is bound to decimate their ranks. The claims made to them by MIC`s bright stars, that with EU membership they will be free to set up enterprises and compete in EU countries like Germany or France, sounds to them like a sick joke.

There is no doubt that the self-employed form part of the working people. Labour has increasingly come to understand and proclaim this. There is a complementarity of interests between those in self-employment and those who work in factories, hotels, government offices, hospitals, schools. That complementarity needs to be articulated in an institutional framework that makes sense. So, between 1996 and 1998, Labour innovated by creating a parliamentary secretariat for the self-employed.

Now we need to go further. We need to show that, beyond the join-the-EU-at-all-costs illusion, there is a reasonable way by which to modernise our society that allows full space for the self-employed to deploy their initiatives, under conditions of competition and taxation that truly reflect local circumstances.