Editorial

Any discussion about a tax amnesty has to be seen in its wider context. Giving an amnesty to mark some momentous occasion would be considered frivolous and unfair by law-abiding, tax-paying citizens.

This time the situation is far more serious. The government had clear warnings that the impact of Lm250 million in hoarded cash being spent in a short space of time could destabilise the economy. The results of that would, in time, harm... the law-abiding, tax-paying citizens. Why? Because inflation erodes everyone's disposable income and savings. Because if the Central Bank is forced to raise interest rates to mitigate the depletion of its reserves as people exchange their lira into euro, it is the law-abiding, tax-paying citizens who face paying more on their loans and mortgages.

So the decision to grant an amnesty was certainly not frivolous and, painful as it may have been, it was done with the long-term good of law-abiding, tax-paying citizens at heart.

That is, of course, only part of the story. The prequel, as it were, was the fact that the government allowed itself to get to the unacceptable situation where there was so much hoarded cash in the first place. The cash is split into three categories. There are people who do not trust the banking system or who do not avail of it enough. It is up to the banks to try to entice more people to use their services. These people are outside the scope of the amnesty - or the Currency and Bank Deposits Registration Scheme, as it is euphemistically called.

Some of the cash could be related to some clandestine activity and, therefore, subject to anti-money laundering laws. In this respect, it is quite worrying to read (April 20) about people turning up with Lm80,000 in cash to invest in property. Notaries are not obliged to find out or include in the contract how property is being paid for - but they are obliged to report any suspicious behaviour, just as financial institutions must check on the origins of cash transactions over Lm5,000. Everyone has a role to play in preventing trafficking of drugs, white slaves and illegal immigrants.

The amnesty is aimed only at the third category: Income that was not declared for tax purposes. This means the taxpayer has paid more income tax over the years because the tax evader failed to pay his share. The taxpayer has received less benefits because government revenue was not as high as it should have been. And the taxpayer must now watch them get away with a four or six per cent (for cash and for deposits respectively) slap on the wrist. Definitely not a decision to be taken frivolously.

Is it too late? Possibly. Some Lm40 million have already been spent. If the government was as sure about Malta's euro options as Prime Minister Lawrence Gonzi always insists, the scheme could have been introduced at least a few months ago. The delay has already allowed unscrupulous dealers to sell counterfeit notes. It has further fuelled property speculation.

Will the amnesty help? Freezing the registered amounts for a year was certainly an inspired move, ensuring inflation stability during the changeover (and the run up to the election?). But the money will eventually work its way into the economy. The government must ensure that, this time, it is put to good use for the sake of all. It also has a serious duty to ensure that the law-abiding, tax-paying citizens are never again cheated by tax evaders.