The Malta Chamber of Commerce, Enterprise and Industry assessed the latest reports on the Maltese economy re-leased last week by Standard & Poor’s and by Fitch.
It was encouraging to note that both agencies confirmed their previous ratings for Malta. Moreover, it was further reassuring to note the Minister of Finance’s cautious reaction to these developments when he reportedly warned that there was “still more to do”.
Moody’s opted to downgrade Malta’s rating in September and the difference in stance may lie in the fact that this agency also incorporates government guarantees for public entities, which could translate into public debt in the event of a default by any of these companies.
Credit ratings are ultimately issued for government borrowing purposes. There is little doubt that the country has reached the point when it can no longer escape the need to put its financial house in order. It is clear, therefore, that the forthcoming budget needs to be formulated within the context of addressing Malta’s debt metrics, which are under European and international scrutiny. Unless they are effectively tackled, the authorities might be left with no alternative but to resort to higher taxation. External sources may dictate a hastening of this process. A higher taxation scenario would further damage national competitiveness and chances of growth, possibly leading to a difficult vicious circle.
In this vein, the Malta Chamber strongly believes that the authorities must tackle fiscal consolidation through more proactive measures to enforce fiscal morality. The European Commission recently calculated Malta’s shadow economy to stand at 26 per cent of GDP and among the highest in the euro-area. In fact, for several years, the Malta Chamber complained about the country seemingly having a two-tier economy – a productive and tax-abiding section that drags behind it the burden of a large section of the population intent on living on free-meals and others who do not contribute their fair share to the tax coffers, in certain cases with a strong overlap between the two.
This state of affairs is no longer tenable. Malta might, eventually, face increasing internal and external pressures to increase tax rates. As far as the Malta Chamber is concerned, this would be unacceptable as it would equate to picking the easiest and least effective solution to the additional detriment of law-abiding operators and citizens wringing them dry in an attempt to make good for what others failed to contribute in the past.
Attempts to resort to quick-fix solutions would compromise Malta’s chances for export-led growth which, as the Malta Chamber has repeatedly explained, is, in itself, an answer to consolidate public finances.
Meanwhile, the Malta Chamber is encouraged by the unanimous approval in Parliament of a Bill this week, which shall pave the way for the amalgamation of the departments responsible for inland revenue, VAT, customs and tax compliance. The Malta Chamber has long supported this consolidation of resources and is pleased to note that the government and the opposition are in agreement on the matter.
Once resources will no longer be fragmented and scarce, it is augured that the amalgamation will reverse the unaccaptable practice of bona fide traders being subjected to continuous and selective inspections. Experience showed that companies with long and impeccable track records of fiscal compliance bore the brunt of continuous scrutiny and inspections because this was the most convenient approach for enforcement officers.
The move is also a step in the right direction towards fulfilling a long-awaited proposal of the Malta Chamber. For several years, in fact, it has called for a unified entity responsible for performing organised and effective market surveillance on both the fiscal and technical levels in a concerted effort to fight the problem of illicit trade, which adversely affects bona fide traders, government revenues and consumer interests.
The country still requires a unique authourity armed with the necessary resources and executive powers to be in a position to, once and for all, proactively enforce taxes, laws and regulations on those that operate below the radar and beyond the knowledge of any authority including fiscal.
The Malta Chamber supports the Minister of Finance in the task ahead to strengthen the country’s public finances in the hope that the matter is tackled through the effective and responsible measures that are required. On the contrary, it cannot support any attempt to implement easy solutions that are clearly not in the country’s long-term interest.
The Malta Chamber appeals to all social partners to cooperate towards this end as this is an issue that affects us all. The ongoing budget consultation period must serve as the ideal platform for all social partners to come together and seek the necessary and pressing solutions that are right for the country.
The author is president of the Malta Chamber of Commerce, Enterprise and Industry