Our country’s fiscal system is constantly being challenged. The drive by our European peers towards high fiscal harmonisation remains our biggest threat. Hence, it is imperative to rebuild the reputation of an attractive domicile country, fully compliant with OECD principles and supportive of reasonable European initiatives in the area of taxation. How can we achieve this?

The Government needs to ensure that transparency is enhanced across the board. This is necessary to fight off the perception of Malta as a shady and a tax haven country by:

Greater collaboration with foreign tax authorities is necessary as there should be a sign of goodwill towards the common good of better income distribution;

The government needs to establish a code of conduct among operators to shed off excessively aggressive tax planning practices which border on tax evasion;

Emphasis that Malta’s attractiveness for domicile goes beyond mere tax considerations must not be overseen; and

The government must explore options for a generalised reduction in corporate taxation and shift towards indirect taxation. More importantly the government must defend our international tax arrangements, while providing for the possibilities of lower taxes for home-grown productive sectors so that these are not placed at any disadvantage.

However the external pressure for fiscal harmonisation is not the only threat to the sustainability of the country’s fiscal system. We must tread very carefully so as not to give in to the theory that there is need for higher taxation as a result of unsustainable expenditure growth.

Fiscal sustainability is crucial as it is a signal for business and people that there won’t be surprise tax increases in the future. It is also an indication that the government is managing its affairs in an efficient manner leaving more space for the private sector to flourish.

Government needs measures which protect its revenue against shocks and economic downturns

A small surplus registered in a period of very high economic growth does not necessarily mean an economy has achieved fiscal sustainability. We should be asking ourselves whether the government can still balance its books when: economic growth returns to more normal levels, as will invariably happen; interest rates increase in future years, which would increase the cost of public debt; and the population continues to age, making very strong demands on welfare and health expenditure, which would not be providing tangible productivity dividends in return.

The government needs measures which protect its revenue against shocks and economic downturns. To this effect it must not only aim at defending our international tax arrangements but must also tangibly fight tax evasion by enforcing tax collection to ensure the fair amount of taxes from all who should be paying them is actually being collected.

The government needs measures to protect against excessive spending with programmes, projects and initiatives that benefit economic growth and social welfare. It must also:

Tie expenditures to the attainment of specific results in areas such as health, education, poverty, job-creation, environmental protection, etc;

Prevent expenditures clearly motivated by the political business cycle. There should be Parliamentary oversight on this issue;

Ring-fence certain expenditure programmes through specific revenue sources;

Reinforce the oversight of theFiscal Council;

Ensure that government’s initiatives and projects beyond a certain threshold need to be supported by an independently commissioned cost-benefit report published and drafted in line with the guidelines for the submission of EU-funded projects;

Set up a commission to publish independent comprehensive spending reviews across the board to identify options for expenditure savings across all government activities; and

Shift away from one-year budgets to three-year fiscal planning.

The solution for a sustainable fiscal system is not higher taxes but to keep expenditure growth under control. This can be done only with the goodwill of the government to prioritise its expenditure patterns by giving more weight to capital projects which would pay off in the medium to long term while being far more responsible with tax payers’ money when it comes to certain recurrent expenditure where the beneficiaries of such a significant expense will be the very few.

Kristy Debono is Nationalist Party  member of Parliament.

Question Time this week is not being carried in its usual format as the Labour Party failed to submit its contribution on time.