Editorial

The government's decision announced by the Prime Minister not to press for tax payments that are due will, no doubt, ease the pressures being experienced by businesses of various sizes as they grapple with the prevailing economic slowdown. Cash flow is the oil that lubricates the wheels of business and anything that can be done to ensure that this lubricant is constantly available should be done.

There are, however, some qualifying comments that need to be made to ensure that this measure is not simply a postponement of inevitable consequences that will face some businesses. The Prime Minister was quoted as saying that the government had decided to give a breathing space to companies "that genuinely fell behind in their national insurance and VAT payments because of cash flow problems".

There are various reasons why companies face cash flow problems: some can be managed while others cannot. It is to be expected that in a time of economic slowdown debtors take longer to pay their bills. Similarly, businesses are often forced to grant more generous credit terms to their clients to help them place orders that otherwise would just stop. In such cases the measure announced by the Prime Minister should come in handy.

But this measure will not be of much use to businesses that are insolvent - those that have more liabilities than assets and that are likely to have been operating at a loss for some time.

One cannot say that such companies have genuinely fallen behind in their tax payments simply because of cash flow problems. A failed business will only gain a few months of existence if it is allowed to postpone paying its taxes. The inevitable closure will soon follow. This is the unforgiving but effective rule of a free market economy.

One important consideration made by the Malta Employers' Association, the Chamber of Commerce, Enterprise and Industry and the Chamber for Small and Medium Enterprises - GRTU is that the government itself should set an example and be more punctual in paying its dues to businesses to which it owes money. VAT refunds should be settled expeditiously, especially now that the police investigations into fraud allegations at the VAT Department have been concluded.

The government should even go a step further in making this measure more manageable by indicating how long this extension should be. This will avoid problems of interpretation in future when the government will decide that this measure is no longer needed. It is, after all, the taxpayer that is really making this concession possible through an increased cost in taxation.

No one really knows how long this phase of economic slowdown will last. It is, however, likely that Malta's recovery will lag behind that in the rest of Europe. There will inevitably be companies that will fare better than others and come out of this phase stronger than before. The recent measures introduced by the government to ease the pressures will ensure that no business will fail simply because of temporary cash flow problems.

As rightly pointed out by the president of the Malta Hotels and Restaurants Association, there are other issues that need to be addressed. The acid test for the tourism industry is still to come in the coming weeks. If operators in this industry experience a good summer, then there will be good reasons to hope that the worst for the economy will be behind us. If not, then more pressure-easing measures will be needed to safeguard business viability and save jobs.