Malta is not the issue in Paradise Papers. It is the global financial system

They say nothing is certain in this world, except death and taxes. I’m not so sure about the second ones – as has been shown over the past days through the Paradise Papers.

Over the past year, the local financial sector has been under attack on various fronts. But really and truly, compare what we offer to big business to what the Netherlands, Ireland, Luxembourg or the UK offer. In many cases, Malta is more transparent and upfront about what it does. Let’s put things into context. The Paradise Papers leak showed that a major US company uses a limited partnership vehicle, established in the Netherlands in the 1830s, to pay ridiculous amounts of tax. Outside the US, their tax rate was 1.4%. 

Even in a relatively closed environment such as the US, companies use different states to do this. Delaware, a small state in the north-east, does the exact same thing by not having a state corporate income tax. Montana, Nevada and Wyoming are not too far off.

Big Business

The real issue here is not Malta. It is the global financial system. But a global financial system is also dependent on an array of things, including policymakers. We have seen what happened in Greece over the past two decades, with big business influencing policymaking in an unhealthy manner. We must make sure there are checks and balances in Europe to prevent overbearing influences from the business side. 

The United States has invented the art of lobbying, but there are strict laws and regulations in place to regulate that relationship. We must have these mechanisms in place, even for Europe. The EU must also have a common policy on actual tax havens, with zero beneficiary information and zero tax rates, outside its jurisdictions and the relationship of European commerce to them. There can’t be a rule for the multinationals and a rule for the common man. But today, all this is legal and dandy. They are companies who produce our everyday products and they are legitimate. Plus, these strategies are on the increase as more and more companies are doing it. It will come a time when it has to stop, simply because it is no longer sustainable. 

The EU must also have a common policy on actual tax havens, with zero beneficiary information and zero tax rates

Malta

Our country managed to be a step ahead of the game thanks to a financial industry which was created by the Nationalist Party in government and supported by the Labour Party in opposition, over the years. This industry was created by making sure we are efficient, within EU law and competitive with other jurisdictions. Couple all this with quality practitioners on the field and we have a winning formula. Now the Nationalist Party, through its two leaders, jump on the bandwagon and paint Malta as Sodom and Gomorrah. They cry wolf at every corner, without knowing what they are on about.

You can’t be a hypocrite in the morning and an angel in Parliament in the evening. You can’t make use of generous, well-planned and EU-approved business incentives in the iGaming, shipping and financial sectors to charge hefty fees in the morning, and talk about Malta being an illegitimate tax haven in the evening in Parliament. It doesn’t work that way. If the Nationalist Party wants to destroy these sectors, they can put it in their electoral manifesto next time round, and then explain how exactly we are supposed to incentivise business to come to Malta. It takes more than sweet honey and sunshine. After that, they can explain where the inevitable budget cuts from a shrinking economy will take place. Will it be pensions? Perhaps health and education?

There are things we can do better here. During a Q&A session with University students this week about a different topic, I explained that I would be the last person to introduce a particular set of policies allowing some heavy hand from the outside to crush the University of Malta. Their reply was that I might not, but I won’t be Minister forever and one doesn’t know the intentions of anyone who will follow me. They are completely right. And that is why checks and balances and review mechanisms are important. As a country we have a lot to improve, including the financial services and governance.

The political class needs to understand that this is a competition among countries, and our edge is irking others

We must work hard to defend our reputation. Having the financial watchdog in business with shady characters doesn’t help. We must tighten up where needed. But, overall, a lot of this country was built on these sectors. 

Above all else, the political class needs to understand that this is a competition among countries, and our edge is irking others, who have financial capitals of their own to sustain. Malta is attracting business which usually goes their way, and we must work together to make sure that while the industries we have are transparent, reputable and efficient we continue building more sectors which provide jobs and create wealth in this country. And beyond mere business growth we must continue to nurture an ecosystem for sustainable economic and social development.

Evarist Bartolo is minister for education and employment