An oligopoly tax

Without windfall profits there is no logic for a windfall tax. For profits to assume a windfall character, besides substantial, they need to be unexpected and not directly connected with the industry or company concerned.

Currently, there is a strong case for levying such a tax on the surplus market value created on the land that is now being earmarked for entry into the development zone. This value is, indeed, substantial, unexpected and totally unconnected with the owners' endeavours or inputs. The incidence or impact of this tax, whatever its form or intensity, should occur, of course, on point of eventual sale or development approval.

The suggested windfall tax on banks presumes that their super profits have not been anticipated and have not resulted from the bankers' operational ingenuity. Which is certainly not the case. There has been no sudden devaluation since 1992, for instance, which would have swelled the banks' Lm-denominated profits. What is more, since the advent of HSBC, over 50 per cent of the banks' equity is foreign-owned, with the result that the windfall factor would, anyway, need to be tampered accordingly.

More importantly, the country's fiscal imbalance problem should not be solved by one-off measures, windfall or otherwise. Admittedly, curbing public expenditure is top of the list and paramount, but this is not always socially or politically desirable, even if strongly recommended by economists. We need a tax that is substantial, perennial and minimal in its economic and social costs. Such is the nature of an oligopoly tax.

A specific factor in Malta's set-up is undoubtedly its minuscule home market which often impedes or deters the prevalence of a sufficient number of operators in certain industries that can guarantee that competition really works as it should do in the interest of economic growth and the consuming public. An oligopolistic scenario, if ever there was one. Just look at the super profit makers listed on the MSE: Is there any one of them operating in a truly competitive market where resultant profits can be attributed chiefly to efficiency? Are there, for example, any exporters among them, visible or invisible? And not just banks.

There is no need for an economic guru to identify those relevant local markets engendering oligopolistic profits and to recommend the rate/quantum of an oligopoly tax that would annually be announced by the Finance Minister in his budget speech, preferably in prior consultation with the particular operators and with "moral suasion" definitely on the cards.

The task is not that daunting. In no way should it impair our EU commitments. It may even, for once, manage to secure the opposition's acceptance. Now that is something to think about.