The debate on the Permanent Residents Scheme that was suspended late last year raises important issues relating to the real scope of this scheme and the changes when it is reactivated.
The gist of this scheme is to entice wealthy residents to settle in Malta as long-term tourists and thereby help our economy through their expenditure. The purchase or rental of local property is only a part of this scheme, but there is an apparent disagreement between the government and the representatives of the property sector on how important this part of the scheme is.
The Chamber of Commerce appealed to the government to reactivate this scheme after making appropriate changes to the conditions to eliminate any chance of it being abused. The Chamber believes that the economy will benefit from the reactivation of this scheme because “permanent residents put a lot of money in the economy”.
The Minister of Finance was naturally more concerned about the costs of such a scheme if it were to be abused by those seeking to benefit from the free social services that are available to all residents of Malta, be they Maltese or foreigners. Minister Tonio Fenech clearly stated that “the Permanent Residents Scheme was never intended exclusively to sell property”. He also said: “The government’s duty was to take all steps to ensure that the revised scheme would be as foolproof as possible. If it took another month to finalise, it would be time well spent.”
As is normal in such debates, there is more than a grain of truth in both sides of the arguments brought by the interested parties. The local economy undoubtedly still has a significant dependence on the property market that in recent years had to struggle to cope with recessionary forces. The representatives of the property market often appeal to the government to help this sector by promoting schemes that boost demand.
However, many analysts argue that the present problem with the market is not so much lack of demand but oversupply. There are an estimated 10,000 properties that are unoccupied, most of which are available for sale. Should taxpayers’ money be used to cushion the pain that results from a fall in returns for operators in this market who are not seeing the properties on their books selling fast enough?
The Minister of Finance answered this question in a very diplomatic way. While the government is willing to boost demand for property through schemes like the Permanent Residents Scheme, it also has to take into consideration the cost of these schemes to the taxpayers. If, as seems to be the case, the conditions tied to this scheme are too open to abuse, then they should certainly be changed.
Business risk should be borne by investors and not by taxpayers who at present have more than a fair burden on their shoulders. When things go right in business, the owners benefit and this is an important incentive for entrepreneurs to take risks. But when things go wrong for whatever reason the costs of past errors of judgement should not be underwritten by the taxpayer.
The Chamber did, however, make the very valid point that since the government has agreed in principle to reactivate the Permanent Residents Scheme, then this should be done sooner rather than later.
As long as the reactivated scheme safeguards taxpayers’ interests there should be no objection to helping the property sector through this scheme.