Taxation is always a very thorny issue. No one likes to pay them because it reduces one's disposable income, irrespective of how desirable they may be from a social point of view.
Probably the word "taxation" still carries with it the connotation that it had in the Middle Ages. At that time people used to pay taxes to pay for the king's armies, palaces, extended family and whatever the king may have required to live a more comfortable life. It was the means of redistributing income from those that worked to those that lived in the king's palace.
Paying tax made someone feel miserable, and I believe it still does, even though the reasons for paying tax are totally different.
Today, as it has been for the past 100 and more years, tax is paid to pay for the cost of government (I do not mean the party in government but the governance of the country and government policies), which may be likened to the old concept of tax, but also to pay for two other important items. These are social benefits in the form of pensions, unemployment benefits, children's allowances and others, and what students of economics would refer to as public goods and merit goods. Public goods are services that are provided to all of us at the same time like law and order or roads.
Merit goods are services that are provided to individual users according to their needs and for which there is no change because they are seen to benefit the country as a whole. These would include among others education and health.
If the government were not to fund these public goods and merit goods out of taxation, high-income persons would acquire these services by purchasing them, while those with lower incomes would not be able to afford them.
Therefore, taxation became a means of redistributing income from those that earned more to those that earned less or earned nothing while providing a number of services to all free of charge.
However, no matter how lofty these ideas may be, people still do not like to pay tax. Whenever there is talk of the welfare gap and the sustainability of our social benefits system, talk about whether our health service should be free for all, or talk about university student stipends, the message that emerges loud and clear from interested groups is that the government should not increase taxes to pay for these things and that everything should stay as it is today, if anything, benefits are to be improved.
The feeling is that the government is some external body that has money of its own and therefore should make good for any shortfall and provide for all, just like parents do in a family. One may understand that children have no concept of money and up to a certain extent it should be like that. This is why one would also understand why children seem to want everything, irrespective of how much it costs.
However, one cannot understand the attitude of the adult population that still expects everything like a perfect health service, a perfect education system, police around every corner just in case a crime is committed close by, irrespective of how much it costs, so long as they are not going to have to pay for it.
This has also meant that the structure of our taxation system (in which one should include not just direct taxation like income tax, but also indirect taxation like VAT, as well as social security contributions) has not changed much over the years.
Successive governments have tried to make the system of collection of tax more efficient and have progressively reduced taxation that was too costly to collect or that was leading to a substantial element of evasion. Otherwise, the two real big changes in the last 20 years have been the introduction of VAT and the progressive dismantling of import taxes (both are different forms of consumption taxes) and the restructuring of the income tax brackets.
Both happened in 1995 and the following year, the party in government lost the election. There was an attempt to introduce a new form of tax in 1997-98 with a charge on the water meter, and the party in government lost the election of 1998.
The same thing happens elsewhere. The infamous poll tax is supposedly to have cost Margaret Thatcher her prime minister's job in 1990 in the United Kingdom. This takes us back to the claim I made at the beginning of this contribution that taxation is always a very thorny issue. It is essentially seen as a burden.
Is it really a burden? We could compute an index that adds up the percentage rate of tax paid by companies, the highest rate of tax on personal income, social security contributions paid by both employees and employers and the highest rate of VAT.
In Malta, that would add up to 105. Within the present 15 member states of the European Union and the 10 acceding countries, the index ranges from 74 to 179. There are three countries that have an index lower than ours and 21 that have an index higher than ours.
The structure within each country varies. For example, Ireland taxes profits made by companies at the rate of 13 per cent (compared to Malta's 35 per cent) but has VAT rate of 21 per cent (compared to Malta's 15 per cent) and the highest rate of tax on personal income at 42 per cent (compared to Malta's 35 per cent).
Another calculation we can do is to compute the total amount of money collected by government in the form of taxation, that is including customs and excise, as a percentage of the gross domestic product. This is estimated to have amounted to around 36 per cent in 2002. In a number of EU member states and the 10 acceding countries the percentage is lower, but the percentage ranges from 29 per cent to 53 per cent.
The fear of all governments is that if one seeks to increase revenue from further taxation to make the welfare system more sustainable and to reduce the fiscal deficit, more and more persons would seek to evade tax, with the result that part of the economy would go underground.
Governments also fear that businesses would invest less if there were an increase in taxation. This puts us all in a quandary because sooner or later we will have to sort out the pensions issue, the issue of health services provision, etc.
This is why taxation is an issue that should belong to everyone, not so much because we hate paying tax but rather because taxation eventually flows back into the economy and this helps a number of us to maintain an acceptable standard of living.