He called for Konrad Mizzi’s resignation over his Panama company, but Labour MEP Alfred Sant tells Kurt Sansone Malta’s bigger problem is the perception in Brussels, pre-dating Panama Papers, that it is a tax haven.

The EU executive has long advocated corporate tax harmonisation across the bloc. Has Panama Papers strengthened those voices in Brussels?

Yes, but they didn’t need much strengthening. There has always been this drive to harmonise financial systems within the EU, especially now with the banking union project. Furthermore, there was the Lux Leaks scandal last year, which involved [advantageous tax schemes for] multinational corporations, that gave rise to a huge wave of concern within the EU that something had to be done about it.

The European Commission came up with the idea of analysing the advantageous tax rules from the perspective of State aid, and it is working on this in earnest. The European Parliament also pushed initiatives to close tax loopholes and create a common corporate tax reporting system that would be the precursor for harmonising tax levels.

You have argued, like many others, that a move towards tax harmonisation is a threat to Malta’s financial services industry. Why?

Financial services are tied to the need for corporations to manage their input and output flows in the most tax efficient ways. Financial services also provide the know-how on a globalised basis for corporations to adjust their systems and make their operations financially more effective. In this way companies can get better interest rates for equity placements and holdings by finding banks that can offer the best arrangements. You need financial services for all that. There is also the question of insurance and asset holding systems that need to be flexible and able to operate efficiently by responding to market changes.

But financial services also provide openings for money laundering, tax evasion and aggressive tax planning. Malta has, over the past 25 years, specialised in financial services, rightly or wrongly. I have always been a bit sceptical of this. But we have to watch out for everything that hits financial services on the wrong side of the fence.

Why are you sceptical?

The economy has become too tied to services such as tourism, financial services and gaming. On the flip side, industry, research and development, the traditional sectors like shipbuilding, ship repair, farming and fisheries have all declined. We are too dependent on services.

Is tax harmonisation harmful only to the financial services sector?

Not just. By joining the EU Malta adopted its regulations. VAT is governed by EU rules, there are State aid regulations, and as eurozone members we now also have budgetary controls and the adoption of the euro has removed the exchange rate mechanism from our hands. This means that the country’s flexibility to shape its economy has diminished a lot. A small country like this needs some form of flexibility, and the only tool left in our hands is taxation. Tax relief can provide the leverage to attract companies here and losing this is not good for us.

I am increasingly becoming leftist. People want a change. They want an alternative

Panama Papers has angered many citizens at the way rich individuals are siphoning off millions into secretive jurisdictions and finding the best ways to avoid paying taxes. And yet the country defends its own sector. Is there a sense of moral schizophrenia here?

This has always been my problem with financial services. But if financial services are managed in a transparent way, with things being done from a financial perspective and not a tax evasion perspective, there is a legitimate case to be made. Malta has always satisfied the most extensive rules available and until now these have been the OECD rules. The EU is now setting its own rules on transparency that go even further towards tax harmonisation. But financial services always have this tinge because they are used for corruption, money laundering and tax evasion. This also happens in Malta.

Has Malta’s case in Brussels against tax harmonisation been dented as a result of Konrad Mizzi and Keith Schembri’s names appearing in Panama Papers?

No, Panama Papers has nothing to do with Malta’s case. Panama is so big and Malta is so small. That is not the problem. The real problem is whether we are being perceived as a tax haven or not.

How are we perceived in Brussels?

As a tax haven.

Despite all our arguments that we are not, that we uphold the highest standards and adhere to OECD regulations?

Jacques Attali, the former councillor to French president Francois Mitterand, two years ago in his weekly column in L’Express, mentioned Malta as one of the tax havens that has to be controlled. The French have that opinion. They don’t say it publicly, of course.

Could Malta lose a strategic ally if Britain leaves the EU?

That is the one big reason why we would like Britain to stay. The British have the biggest financial services sector in the world and they can be quite tough. But then again, the continentals like The Netherlands, Luxembourg and Belgium have their own financial services centres. They also play an aggressive game.

This does play in our favour, though, because when these countries come to the nitty gritty of introducing new pan-EU rules, they always stall. The proposed financial transaction tax is an example. There was a big rush some years ago to introduce such a tax. A number of member states pulled out and a core group decided to go ahead. Three years down the line they have not agreed on a mechanism.

You have argued publicly that Konrad Mizzi should have resigned. He has refused. Should the Prime Minister have kicked him out?

All I had to say about that point, I said. I have nothing more to add.

Do you stand by what you said?

Of course.

Should the Prime Minister have removed Keith Schembri?

All I had to say about the whole affair, I’ve already said.

Let me put it differently. In 1997 you were Prime Minister and faced a situation wherein your justice minister, Charles Mangion, resigned because of an administrative error over a presidential pardon to a drug trafficker. He just left. The decision was taken there and then; no months or weeks rolled by. It was handled much differently from now.

Styles are different, so it is normal.

It took the Prime Minister a lot of time to take a decision. He reshuffled Cabinet last month, a decision that might have satisfied some but was unsatisfactory for many others. The issue has been allowed to drag on.

Maltese politics is based on telenovelas.

What do you mean?

It is exactly what I said. Look at Maltese politics over the past 50 years and you see one telenovela after another.

Why is that so?

Frankly, at the moment, increasingly, the two parties have very similar policies. One way in which they can differentiate themselves is through the tribal system. This creates telenovelas. The last big ideological debate in this country was about joining or not joining the EU.

So it is just a question of who has the better style in government.

Probably. This is the problem in Europe, which explains the rise of extremist parties. People see that the left and the right are equivalent. Look at Austria: the left and right were obliterated from the run-off of the presidential election. They had an extreme candidate on the right wing and a leftist ecologist candidate vying for the presidency. We do not have it to this extent in Malta, but it is an issue.

This is an issue many in the Labour Party’s grassroots are concerned about. They argue the party has become too cosy with big business and lost its socialist roots.

That is not the point. Up to 2008 we were left-centre. Post-2008, for clear electoral reasons, and I agree with them, Labour became centre-left. So it’s centre-left against centre-right. Look at the European Parliament, for instance. There is a coalition between the EPP [the European People’s Party] and the S&D [Socialists and Democrats]. It doesn’t have the courage to declare itself a coalition but practically that is what happens. Many times the disagreement is a question of emphasis.

Where do you stand on this?

I am increasingly becoming leftist. People want a change. They want an alternative. This is also happening in the US. We had an American intern at the Brussels office. He was a Democrat, young and black, who could easily fit the profile of a typical Clinton voter. But he supported Bernie Sanders, despite the candidate’s age, because he was the one ‘with policies’.

Back to Panama Papers. Are you happy with the way the Prime Minister handled the affair?

All I had to say about this, I said.

Is the government correct when it says a decision has been taken, Panama Papers is behind us and it is time to focus on delivering the goods in the next two years? Will people just vote on the basis of good economic performance?

The basic rule is if the economy is doing OK, the government is in good shape. It was not doing so well in 2012 and 2011. The economy is now doing well, even though I believe we are doing it dangerously, with over-reliance on services. Things will turn out really badly for an economy built this way when the downturn happens. The Finance Minister cautioned about this last Thursday. He is right to make that point. But all forecasts say the economy will continue performing well in the next two years.

What does the country lack that can stimulate the growth of other economic sectors?

Our industrial profile has been going down ever since joining the EU. We still have some good firms like Methode, and that is something we should be pushing. But there has not been any significant advance in other areas. There is a push towards healthcare, but then again it is services based, even though less susceptible to moving out quickly. Financial services and e-gaming are footloose and they attract antagonism from other states.

How to get a diversified profile is the thousand-dollar question. As a country, we try to bluff but very few real potential investors are bringing their business to Malta. We saw it during negotiations for Air Malta: big names were mentioned but then they did not come.

Do you think the Labour Party is doing a good job in government?

In many areas, yes. It has managed to ride an economic wave and that is not always easy, because there is a tendency to overreach when you are on a roll. They’ve done a very good job on civil liberties. They are liberalising people’s perceptions about social attitudes and I think they are managing to hit at the inequality spectrum. I have seen the Caritas report but the data does show that poverty has been contained.

Poverty is an issue across Europe. Of the 2020 goals, the least successful one is containing and rolling back poverty. In Malta we do not have that problem. Government is doing a good job on the immigration front, which has been contained through diplomatic means. They are also doing a good job in preparation for the EU presidency.

Good governance has been one of the areas where, even the Prime Minister admits, the government has failed.

The point is that they still need to put systems in place.

Don’t we have systems, and rather it is a question of enforcing them?

Codes of ethics mean nothing. To be fair, the government has changed the law to ensure corruption perpetrated by politicians will never be time-barred. Governance under the Gonzi administration was much worse, but the Nationalists are cleverer at hiding what they are doing or not doing.

The bar was set high before the last election by Joseph Muscat himself.

This is a good thing.

The economy has become too tied to services such as tourism, financial services and gaming

He has not lived up to that commitment.

At least there is a bar up there and people can measure against it. They can measure things against a high bar, not against the lowest bar possible.

Setting a high bar in itself is good.

I agree with you, but the question is whether the government is living up to it.

That will be the second point on the agenda. But at least the first point has been satisfied.

Some people would argue there is no money for cancer medicine but money is squandered on other things as a result of bad governance.

They have every right to say that. This is how the political system works, and that is where governments get punished, if they merit getting punished.

Do you feel Labour could be punished in the next election because of this?

All governments get punished in elections, especially in Europe at the moment.

Doesn’t this put the onus on people like Konrad Mizzi and Keith Schembri to reflect on their actions and leave, so as not to damage the party?

I’ve already commented on that one and don’t have anything else to say.

Did you receive any feedback from the Prime Minister on your comments?

No. Why should there be feedback? That was a social media thing. And of course you have to understand I am in the European Parliament voting against tax harmonisation and against certain tax measures. I wanted to make it clear where I stand on Panama, otherwise they would have said…

So Panama does have an impact.

For sure, because I come from Malta, which is considered to be a tax haven. The argument would be ‘he [Alfred Sant] is against tax harmonisation because he wants Malta to remain a tax haven’, which I don’t. Nobody in Malta wants that.

You say all this and yet Konrad Mizzi and Keith Schembri are still there.

But it has nothing to with them at this stage. It is about Panama, and this leak has one million files. Most of those million files, for some strange reason I don’t understand, do not attach to American citizens. They are all European, Asian and Russian citizens.

Will you be contesting the next general election?

I am out of Maltese politics.