Afred Sant | Where Malta should stand

In the next five years, Malta’s interest is to maintain the momentum and competitiveness of its growth sectors... It is going to be a tough challenge

Understandably, discussion of Malta’s position in the EU has focussed on our performance during the first fifteen years of full membership of the Union. However, possible developments during the next five years should be deemed of equal interest.

We need to think more about the alternative scenarios that could emerge in coming years to affect our economic and social situation.
Decisions taken in Brussels are sure to condition what happens in Malta.

That was the case during these last fifteen years, in ways that most often, Maltese people do not realize. They only wake up and start caring when it is too late.

Economic strengths

To be sure, the economic upsurge of the last five years or so convinced most people that EU membership has been a good thing. Concerns about negative side-effects of the recent growth though increasing, remain a minority concern.

Those who were directly and badly affected by membership have either compensated for it by turning to growth areas, died out or have lost effective voice in the country’s governance.

What is frequently overlooked is that our economic strengths are now concentrated in areas of activity which lie outside the purview of EU single market policies: tourism, construction, financial (including maritime and freeport) services, i-gaming and possibly in a short while blockchain, AI and related technologies.

In all these areas EU regulation and policy making are at best minimal.

Meanwhile, traditional growth areas continue to have problems to cope – like agriculture (which is being slowly strangled) and manufacturing (also in retreat compared to fifteen years ago, and having to import cheap labour in order to remain competitive).
In the next five years, Malta’s interest is to maintain the momentum and competitiveness of its growth sectors, while hopefully trying to nudge its failing ones towards a better performance.

It is going to be a tough challenge.

Tax harmonisation

Ideally for Malta, what has flourished outside single market constraints had best remain like so. Pan-European regulation of areas in which financial services thrive would restrict the flexibility which Malta has enjoyed (along with others) in providing them.

Unfortunately, the belief has grown in Europe that the countries which provide financial services, are helping tax dodgers, from corporate transnational giants, to crooked politicians and all other sorts of crooks, whose main interest is to shield taxable or illgotten gains from investigation by tax officials and policemen.

This has angered workers, the self employed and pensioners, and has mobilised trade unions and many employers’ associations. Consequently, the need to harmonise taxes on corporate and other taxes has become a popular cry.

With varying emphasis, it has been adopted by the European Commission; by many members of the European Popular Party (mainly but not only, when proposing that a European corporate tax policy should no longer be subject to unanimous agreement among member states); as well as by socialists, greens and the hard left (by way of setting a minimum level of corporate tax).

Equally on board are the various populist strands, which rail against tax abuses committed by powerful, cosmopolitan elites and transnational companies. For all these, providers of financial services are “tax havens” which tax harmonisation would help to constrain.

Thus, putting tax matters under a qualified majority decision system would short circuit Malta’s best defence – unanimous decision-making – against getting shoved into tax harmonisation.

The move has been proposed by Jean Claude Juncker, the EPP’s President of the Commission and endorsed by the EPP’s spitzenkandidat at this May’s European Parliament elections Manfred Weber.

The likelihood is that if their proposal is carried forward, it will have the backing of socialists, liberals, greens, you name it, every group in the EP.

The approach

To contest it, sole  reliance on the unanimity rule would be hazardous.

It would spark further allegations against Malta’s integrity and determination to control tax abuses. The Maltese approach should be to insist we stand four square against abuse.

To make this clear, we need to back full transparency on tax matters regarding who is who, who pays what and how and where. This may be too strong a medicine for some financial services practitioners, but it would need to be applied strongly across the board.

Meanwhile, we need to focus on and propagate facts-based arguments to emphasize that financial services occupy an important economic and financial niche that is crucial to ensure fluidity in post-modern economies.

So, the premise that tax harmonisation would restrain hugely tax abuse has to be challenged head-on – not just in political but also in technical terms.

For instance, no tax in the EU is as “harmonised” as VAT. Yet, VAT abuse is much more rampant that corporate tax abuse. Harmonisation is therefore not as effective a tool as is claimed against the sins of tax evasion and avoidance, agressive tax planning and so on.

Finally and just as importantly, during the next five years we need to fully support the effort to reverse the decline in social protection triggered by EU decisions taken since the 2008 financial crisis. Moves to assert a social Europe are in the European interest, and in Malta’s interests.

On this wavelength, we should defend the thesis that well regulated financial services and transparent tax flexibility in policy-making complement the measures which are needed to reaffirm a social Europe that also takes proper account of the needs of peripheral economies like ours.

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