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Panama goes beyond national politics

Ultimately, the Panama Papers leak is about the politics of wealth, not just about the people and companies caught with their pants down. Global tax avoidance is a huge problem, and the biggest concern is that it is perfectly legal.

12 May 2016, 7:32am
Cartoon by Mark Scicluna
Cartoon by Mark Scicluna
Naturally, the involvement of other people does not make Konrad Mizzi and Keith Schembri any more or less guilty of their own actions. New names do not absolve a Cabinet minister and the Prime Minister’s Chief of Staff who registered their offshore companies and trusts in tax havens while in office. 

Mizzi’s and Schembri’s positions remain just as untenable, and Prime Minister Joseph Muscat may yet rue his ill-advised decision to defend them… albeit taking superficial disciplinary action against Mizzi.

Even if the uproar seems to be on the wane, the long-term consequences for the government could be serious. Already questions are being asked at international level: concerning Leo Brincat’s nomination for the European Court of Auditors, for instance, and the fact that he voted in Mizzi’s favour. 

Labour would be unwise to dismiss such questions as ‘planted’ by the Nationalist party, and even more so to underestimate the wave of disgust and anger the Panama Papers, in their entirety, have caused outside Malta. This issue may yet return to haunt Muscat in more ways than Brincat’s appointment alone.

But Monday’s revelations also exposed the extent of rot in a system which is to a large degree founded on precisely such dealings.

Ultimately, the Panama Papers leak is about the politics of wealth, not just about the people and companies caught with their pants down. Global tax avoidance is a huge problem, and the biggest concern is that it is perfectly legal.

While 99% of the people are expected (and do) pay their taxes down to the last cent, the rich get away scot-free with siphoning money elsewhere: money which would not be taxed, and therefore cannot contribute to the improvement of our hospitals, schools, roads and welfare system.

The World Bank and the International Monetary Fund (IMF) warned that the industrial scale of international tax avoidance revealed by the Panama Papers represents a “great concern” for the global economy, and is having a “tremendously negative effect on our mission to end poverty”.

Although it has never been blacklisted as a tax haven, Malta itself has gained an undesirable reputation as an offshore haven for illicit money within Europe.

In order to maintain a competitive edge, Malta offers wealthy individuals and corporations advantageous tax rates, using tax breaks to attract investment: some of which could possibly originate from criminal activities, as shown by a recent crackdown on online betting companies with links to the Italian mafia. 

On a global level, this race to the bottom often irks larger economies and the EU’s economic powerhouses are less than pleased with the laxity of Malta’s tax regime.

Malta is under increased pressure as Germany, France and Italy are pressing the EU to tighten restrictions on tax havens, after calling for measures to impede “aggressive tax planning” and “profit shifting”.

Prime Minister Joseph Muscat might be counting his blessings, as the latest revelations could well serve as a smokescreen for his two closest allies… but the real question is whether the government and the opposition intend to reform this rotten system once and for all.

For too long now politicians on either side have spoken of Malta’s tax regime only in terms of the profits generated by investment, and the associated spin-offs… of which the number is not small.

But legislators must also look at Malta’s place within the world economy. A national fiscal policy needs more in the way of justification than the mere bottom line alone… otherwise, it would operate no better than any criminal organisation.

It is admittedly a complex issue. As with the international arms trade, there is an old argument that ‘others would step in if we pulled out’. It is undeniable that making one country less attractive to global capital will simply push the flow of black money to other territories. The problem is international, and requires a worldwide solution. 

Intermediary companies and individuals who offer such services – including some local names listed in Monday’s leak – play a central role in this system; and while they undoubtedly act within the parameters of the law, they also act as vehicles which shift money to places which guarantee secrecy, low or zero income tax rates, and non-cooperation with tax authorities from other countries.

Ultimately, we must ask ourselves where we would like to position ourselves on the tax evasion map. Is it dignified of Malta to be an actor in the international orgy of tax evasion, money laundering and kleptocracy? Shouldn’t we be asking ourselves instead whether we want an economy that works for all people rather than just the few… an economy based on social justice and the highest labour and environmental standards?

DealToday
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