The end of the world as we know it

Maltese businesses facing liquidity problems would have deferred paying their tax and social security dues in any case

Edward Scicluna: the €1.8bn budget “will have no real impact on businesses”
Edward Scicluna: the €1.8bn budget “will have no real impact on businesses”

There is nothing to write about except the COVID-19 pandemic and whatever one thinks – as I write – will be overtaken by events by the time this piece is published.

Perhaps, therefore, I should dwell on what the world will look like after the pandemic is over. The negative economic effects of the pandemic are easily understood by everyone. Their severity is anyone’s guess. Forecasts by so-called ‘experts’ differ wildly, the problem being that there are so many unknowns that estimating them by different people produce different results.

We know that the pandemic is practically over in China, where it originated in the first place and that it is currently at a high in mainland Europe, with Malta and Britain some two weeks behind ‘schedule’ – for want of a better word. The trajectory of the pandemic will follow the same pattern in the US, Australia and other Asian countries such as India and Indonesia – both demographic giants in terms of population. Somehow the situation in Africa is less severe, unless the same pattern will eventually be repeated in that continent as well.

There are some lessons to be learnt from this pandemic.

First is, of course, that man has not harnessed nature as much he likes to think he has. Viruses are very small entities that hardly qualify as living organisms: they cannot reproduce on their own and must hijack a living cell – of a human being or of another animal – and fool it to produce copies of the virus.

Stopping this ‘production line’ is no easy manner: to be vanquished, different viruses need different treatments. Scientists are researching into COVID-19 but this will take time. Meanwhile the pandemic spreads.

The idea should humble all of us. Humans pretend that they rule and can control what happens in the universe and many even claim their spirit is immortal. Without entering into this hot religious and philosophical issue, there is no doubt that the forces of nature are too strong for man to control – although, at its own peril, humanity is capable of somehow undermining them. Remember climate change?

Secondly, human solidarity has also taken a thumping thrashing. Countries are closing borders to avoid ‘foreigners’ from passing on the virus to their citizens. The EU, built as it is on the notion of shared sovereignty, rather belatedly decided – in a very weak move – to close its borders with non-EU states after the member states of the EU had gone much further: they closed their borders with other member states with whom they are supposed to share a common ideal and a common future.

The US, where the Republicans fought tooth and nail against Obamacare and where there are too many citizens who cannot afford to pay for healthcare, is also learning that distancing healthcare from profit to provide it to those who cannot afford it is solidarity, not socialism. Right-wing US politicians will perhaps start to look at healthcare, social services and state aid from a different point of view. Only after many thousands are left to die, of course.

President Donald Trump’s coronavirus relief package, that includes provisions for free testing for COVID-19 and paid emergency leave, will not provide healthcare to anyone.

So much for solidarity.

The economic toll of the pandemic will end up to be, perhaps, the most telling effect on the world. The International Labour Organisation (ILO) estimates that 25 million jobs will be lost all over the world. As ILO’s director general, Guy Rider, put it: “This is no longer a global health crisis. It is also a major labour market and economic crisis that is having a huge impact on people.”

Financial experts not only give different figures on the decrease in output and GDPs but also calculate that this effect will not be uniform. For example, they predict that the economic ‘advantage’ that the US has over China will dwindle as the economic negative effects on the US will be much more than on China.

When it is over, it will never be an ‘as we were’ situation.

State intervention

Last week the Maltese government announced a series of measures intended to prop up the economy during the COVID-19 pandemic. Business owners and self-employed people, whose trade has been most affected by the economic slump caused by the pandemic, will have all tax and social security payments due for March and April postponed and deferred to a later, as yet undefined, date.

Businesses in the tourism, hospitality, recreation, transport and some manufacturing sectors will be eligible for this payment deferral, while companies that invested in teleworking systems would also be eligible for a 45% refund up to €500 for each worker.

This is peanuts.

In the real world, businesses that face cash flow problems put paying tax and social security at the end of the queue. Their priorities are wages and salaries, bank payments, paying suppliers, and paying VAT, in that order. They pay the government tax and social security dues only after paying the other dues. In other words, had the government not given this ‘concession’, Maltese businesses facing liquidity problems would have deferred paying their tax and social security dues in any case.

The Malta Chamber of Small and Medium Enterprises was fully justified to say that the measures “will have no real impact on businesses”. It was almost a case of ‘thanks for nothing’.

Meanwhile, the European Central Bank (ECB) launched an emergency €750 billion package to ease the impact of the coronavirus pandemic, while EU states are dedicating millions of euros to prop up businesses that would otherwise go bankrupt. The European Commission is expected to propose that governments invoke a general crisis clause allowing them to spend as much as they need to.

On Wednesday, the Maltese government launched a COVID-19 mini budget for business. This will provide €700 million in tax deferrals, €900 million in loan guarantees and a direct boost of €210 million to the economy.

The Prime Minister said that government’s priority is that no jobs were lost but if people lost their employment, they would be given all support to find alternative employment.

However, the Malta Chamber of Commerce, Enterprise and Industry said it was convinced that the announced measures will make it impossible for employers to avoid significant redundancies.

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