The Finance Minister has, yet again, announced another amnesty on late payments of taxes on income. Such an announcement comes after a previous similar scheme had closed, only four months ago, raking in some €43 million to government coffers.
It is certainly no coincidence that this announcement was made at a time when the government is preparing its pre-Budget document and, hence, it is assessing how developments in public finances are faring with the projections and commitments made with the European Commission in this regard. Thus, the fact that the government had to resort, yet again, so soon to a tax amnesty scheme is a clear indication that the Finance Minister is convinced that his fiscal targets are going astray and needs to take further measures to bring them back on course and meet a 3.9 per cent deficit to GDP target for 2010 and, more critically, bring down the deficit to 2.9 per cent of GDP in 2011.
For Labour this is no surprise because public finance data published recently by the National Statistics Office, covering the first five months of the year, clearly show the government had already overshot by about €90 million its annual public debt target by May.
It is also clear that expenditure control has remained very weak, especially in respect of restraint on the government's wage bill, with very fat salaries to top officials and further recruitment in the public sector, promotions and persons replacing outgoing retirees at a higher wage, all to satisfy partisan electoral exigencies. Furthermore, revenue flows have slowed down considerably, barring the revenue from the so-called "one-time" (a misnomer if ever there was one) amnesty scheme, reflecting the weakness in economic performance, especially in the property market. Indeed, the minister has confirmed that a good number of people who wanted to participate in the scheme that expired in February 2010 could not do so due to cash-flow problems.
In this regard, the Finance Minister felt that the banks should have been forthcoming to lend money to individuals and business to pay their tax bills! This statement is questionable, to say the least, especially at a time when the world has witnessed gross misbehaviour by major banks in their lending practices, which almost led to a collapse of the financial system and threw the economies of the developed world into one of the largest recessions in recent history.
In Malta, we have all lauded the prudence of domestic banking practices and the banks should be yet again commended for resisting such demands by the minister that could have clearly endangered the soundness of the domestic banking system and depositors' money.
The banks have rightly pointed out to the Finance Minister that banks primarily lend money to businesses for investment purposes. But, then, it seems that the Finance Minister has been groomed by his predecessor, the present Prime Minister, to borrow from the public not to finance capital projects but the government's inefficiencies, as in the case of the suspended EU funds on education, and partisan employment with extravagant salaries.
The latest tax amnesty is a clear signal for the public to refrain from promptly paying up tax dues since, despite claims by the government that these are one-time opportunities, they keep recurring very frequently. Furthermore, each successive scheme is even more generous than the previous one, thus providing an even greater incentive to postpone payments.
For example, the amnesty launched last September, which closed this February, only covered income tax and defaulters were obliged to make a lump-sum payment. By contrast, the latest scheme also covers FSS and national insurance dues. Tax defaulters have also been given the opportunity to pay up the amounts due over a period of 18 months rather than a lump-sum.
The frequency with which tax amnesties are being dished out and increased generosity in each successive scheme is clearly an incentive for individuals and business for late payment of taxes. This is because frequent amnesty schemes undermine government credibility in fighting tax evasion and fiscal morality.
For example, when, last September, the Finance Minister announced a tax amnesty scheme, The Malta Independent (September 5) reported that "Once this initiative is over (then set at January 15, 2010), there will be full enforcement of the pending dues of FSS and SSC (social security contributions)". But, rather than stricter enforcement, businesses have been today not only offered a renewed amnesty on late income tax payments but also a scheme extended to cover FSS and SSC too and pay it at a leisurely pace of 18 months. This also proves that the latest scheme is no second phase of the previous one, as apparently claimed.
The latest tax amnesty is another clear signal that the government is in desperate need of revenue to cover rising expenditure to prevent debt levels from climbing to even higher levels. The Finance Minister continues to claim that there are still some €665 million in income tax, FSS and SSC dues but, in reality, outstanding dues are much lower.
The latest amnesty is also a signal of lack of credibility in the government in terms of instilling fiscal morality and fighting tax evasion. Above all, the pressure made by the Finance Minister on banks to start lending money to individuals and businesses to pay tax dues is a clear sign that the government is in a desperate situation and feeling the heat to meet its fiscal commitments, forcing it even to resort to unscrupulous and irresponsible measures.
The regularity with which this government is offering tax amnesties makes a mockery of penalty rules on late tax payments and effectively penalises those individuals and businesses that promptly pay their tax dues, thus increasingly undermining the rule of law.
Dr Mangion is Labour's spokesman for finances.