This contribution forms part of the business and finance section of this newspaper and so it should probably have been headlined "What type of economy do we want for our children?" However, the state of any country is so intrinsically tied to the state of its economy that I think it would be more appropriate to use the headline I in fact used. Someone might ask what triggered this headline.
It has been a number of events. To name just a few, these were the protracted discussions among the social partners on measures to raise productivity in the economy; the public discussion on the waste recycling plant in Marsascala; a discussion I had recently with someone about the level of tax evasion that exists in the economy; and an editorial in The Times last week calling for a sense of moderation in the way we tackle issues that could be controversial.
No one really knows the extent of tax evasion in this country; some have estimated it to be at around 15 to 20 per cent of the gross domestic product, while others have estimated it to be even up to a third of our official GDP. However, the high level of consumption, when compared to household disposable income and the increase in savings or financial instruments that represent savings like bonds, shares and collective investment schemes, makes one doubt whether it is possible to achieve such a level of consumption and such a level of saving unless a significant part of income is remaining undeclared.
This level of tax evasion prohibits us from achieving a sustainable level of fiscal deficit and puts in jeopardy our welfare system, notably our pensions system and our health system. A basic analysis would show that for every one per cent of undeclared income (be it in the form of personal income or be it in the form of profits) the government (that is the public) loses Lm1.8 million in revenue from VAT (calculated at an average of 10 per cent) and Lm2.7 million in direct tax revenue (calculated at an average of 15 per cent).
This would mean that, if we were to manage to increase our reported GDP by 10 per cent, the fiscal deficit for 2003 would have been reduced by Lm45 million to Lm60 million or 3.2 per cent of GDP.
Are we telling our children not pay their bills because they can rest assured that someone else will for them?
Do we want to have an economy 10 years from now that has lost its social cohesion because several would not have paid their fair share?
At a time when we speak of corporate social responsibility because it is recognised that the business sector operates in a society which allows it to thrive and, therefore, owes a contribution back to society, shouldn't we be speaking more vehemently of how we can reduce significantly tax evasion in this country?
In effect, do we have a fiscal deficit issue to address or a tax evasion issue to address?
The way we pose the issue is not at all academic but a very practical one as it determines the measures that we take in future.
We could assess the message we are sending down to future generations when we speak of the various initiatives that are being taken to have a better waste management system in this country. It was about time that the environment becomes one of the top issues facing our country. All too often the environment was described by many as the street they live in and just that. However, it became so only after the government took the decision to introduce the eco-contribution; after it decided to close down the Maghtab landfill and look for alternative sites where waste landfill can be located; and after it took the decision to develop the Marsascala waste recycling plant.
The purists might argue correctly that the eco-contribution was not introduced in the appropriate manner as, usually, such a contribution seeks to incentivise the consumption of one good when compared to another. In our case, it is nothing more than a tax on the consumption of certain goods.
However, the long and the short of the eco-contribution is that we need to raise revenue to implement initiatives that are meant to manage our waste better, thereby protecting the environment. The environment needs to be protected from us because we have been the ones to dirty it; and so the eco-contribution is nothing more than the price we are paying for having collectively ignored the impact of our behaviour on the environment.
A rejection of the eco-contribution is nothing short of sending a message to our children that they can do whatever they want and should ignore the general requirements of the economy (tourism and other services requires a clean environment) so long as they are fine and so long as their own backyard is fully safeguarded.
The same argument can be used for other areas and not just the environment. Could such an attitude again undermine social cohesion, with the result that the whole economy would suffer?
This leads us to the protracted discussions on measures aimed at increasing productivity and competitiveness in firms operating in Malta. I have always believed that the country needs a social pact and that eventually all the social partners will want to reach an agreement on it because economic circumstances will have forced them to do that.
However, the importance of the social pact is not just the short-term productivity gains that can be made by the business sector but the long-term commitment to seek consensus on what is good for the economy. It is this commitment that should characterise our economy in future years.