Socialists want ‘great shift’, but Malta Labour MEPs will oppose tax plans

All Labour MEPs are disagreeing with a proposal by a think tank entrusted with drafting the roadmap for the European socialists’ 2024 election manifesto, which calls for the removal of unanimous voting on European taxation matters.

It is one of the proposals included in a report from the top guns of the Socialist and Democrats group in the European Parliament: the “abolition of the unanimity principle on matters of taxation in the European Council that makes effective progress towards tax justice virtually impossible”; and a sensitive incursion into one of Malta’s bastions of sovereignty on grand European decisions.

The proposal was made in ‘The Great Shift’, a report by S&D experts and leaders to come up with “ground-breaking policy proposals to solve today’s most pressing issues” and which will feed into their 2024 election programme.

Unveiled last month by S&D Group leader Iratxe García Perez and vice-president Eric Andrieu, together with former Danish Prime Minister Poul Nyrup Rasmussen, the report is dubbed a ‘lighthouse’ for European social democracy and a roadmap for the way progressives views the future.

Various proposals include a binding European anti-poverty law that will eradicate poverty by 2050, an EU net-wealth tax to combat growing inequalities and finance public investment, a guarantee of energy as a basic social right, and factoring in the carbon footprint of imported goods.

But it is a proposal to remove the need of unanimity from the European Council which is bound to expose the rift between Malta’s Labour and mainstream socialists.

All four Labour MEPS who spoke to MaltaToday welcomed various aspects of the report, but spoke against the removal of the unanimity principle, which requires consensus among all member states on taxation. “Taxation is a member state competence and unanimity on taxation as provided in the Treaties should stay in place… Each state’s right to decide on their own taxation systems according to their particular needs should be safeguarded,” Cyrus Engerer, a critic of this kind of ‘one-size-fits-all model, said, and warned of the disproportionate burdens such measures place on smaller open economies at Europe’s periphery.

Josianne Cutajar also defended Malta’s “fiscal sovereignty”.

“We don’t have the land size, natural resources, or industrial resources that other countries do, and fiscal policy is crucial for our competitiveness.”

Alex Agius Saliba argues that Malta, with its location at Europe’s periphery, needs “sufficient latitude” on tax to counter its insular disadvantages. He illustrates this by noting the EU’s very strict rules on state aid, to show Malta’s need to extend its arms. What is crucial to Agius Saliba, is that the island fights harmful tax practices in line with international norms, saying he is open to stronger rules.

The former Labour prime minister Alfred Sant, now head of the MEPs’ delegation, also expresses “complete disagreement” with the abolition of unanimity. “It’s against Malta’s national interest,” Sant says, while calling for discussions on how to achieve tax justice through workable solutions.

The S&D report is also proposing a 20% ‘fair global minimum corporate tax’ that would also be used to distribute tax income revenue towards developing countries. Sant says the move reflects an emerging consensus, with even Malta accepting the OECD’s mainstream direction on a global corporate rate. But it’s the details that count on these kinds of agreements.

“The Maltese government will have to play it by the ear, taking into full account the local realities which will definitely be of a different scope and dimension to what other countries will be linking their positions,” he said.

Taxing wealth to fund investments

Another highlight of the report is the proposal of an EU ‘net wealth tax’ that ensures the wealthiest households in the EU contribute to the financing of policies that foster sustainability and wellbeing.

Agius Saliba says the guiding principle of the report is that low-income households must not shoulder the green and digital transition costs or the COVID crisis through job losses, higher prices, or taxes. “The idea behind a wealth tax is to ensure the wealthiest households contribute to the financing of policies that foster sustainability and well-being, bringing a balance in a socially unjust world and reducing existing inequalities and imbalances between the richest and the poor people in the society.”

This must be seen in a context where 21% of the EU population, over 90 million citizens, are considered at risk of poverty and exclusion, and 15% of the EU workforce lives on wages that are below the national poverty line, despite working full-time.

“At the same time, 1% of households in Europe hold approximately 25% of the continent’s net wealth, without paying any tax on such assets in all but a single EU country,” Agius Saliba adds.

Engerer says the “biggest fight” in the European Union – and at a national level – should be against tax evasion and money laundering. “In that regard we should direct our efforts to have stronger legislation and stronger enforcement,” he says, but adds that he also believes in a progressive economic policy that invests in people “rather than taxing them with austere measures”.

He also wants taxes shifted away from the vulnerable, to those who can carry the burden, especially those who operate with disregard to the planet’s ecological future. “We urgently need a green transition that is just, and that doesn’t leave the vulnerable behind.”

Cutajar agrees with the having the rich pay a little bit more tax in the name of more social services and stronger wellbeing and sustainability, especially for the poorer off. But then she adds a caveat that this should not “stifle private investment” taht could create additional hardships. And then not by tying governments’ hands on tax: “It is up for each national government to choose its course of action and the economic model which works best; it is all well and good if the government is able to keep sustainable finances, whilst maintaining social and sustainable standards and not introducing new taxes.”

Sant concurs with the Great Shift’s authors that investment is needed to counter growing social inequalities.

“Due to COVID-19, plus the slack investment growth since the 2008-2010 financial crisis, and the huge investment requirements needed to meet the challenges posed by the Green Deal and digitalization, there is a huge need to mobilise public and private investment funds. The question is where will they be coming from.”

This kind of investment could be funded through the EU’s own Resilience and Recovery Fund and from other internally-generated funds created by governments, by being allowed more leeway to borrow. But, as he then adds, this kind of cash could also come from “better harvesting of taxes due; plus finally more taxation hopefully designed in a progressive manner.”

It also comes down to a familiar problem: effective tax collection and cutting down on practices of avoidance and evasion, reflecting the current driver across the EU but also in the United States to impose even stricter anti-money laundering rules and on the operations of so-called tax havens.

Sant expects this pressure to continue. “However, I doubt whether a wealth tax can fly at all before the anti-tax avoidance strategy has been played to the full and has given or not given results. This is because a wealth tax can only be viable and meaningful if it is applied across Europe.”

And then it would also need a further extension of legislative and policy frameworks in the fightback against tax evasion, so-called ‘aggressive tax planning’ and tax avoidance. But Sant does acknowledge the growing gulf between rich and poor. “The rich are getting richer without increasing or contributing more investment and initiative, while the poor are getting poorer without having slackened in the effort they undertake to earn a living.”

Still Sant harbours a suspicion that the budgetary and tax policies of the centre-left parties back in coalition governments across Europe, will not be so different from those of the centre-right coalitions of the recent past. With socialists risking being labelled by the right-wing as ‘the tax party’, Sant thinks the European left could buckle under this kind of pressure.

Labour’s pride: No new taxes in 8 years

In this sense, Malta’s Labour has been following a different economic model that also depends on trickle-down economics, exemplified eight years on from its ascent to power with its latest ‘Budget without new taxes’.

Agius Saliba sees no contradiction between the advocacy of taxation to achieve social justice among the S&D, and the absence of new taxes in Labour’s last budgets. “I agree that taxation is a valuable tool which allows the government to generate revenue, redistribute wealth and invest, but one must also look at our socio-economic scenario.”

But he sees Labour having managed to incentivise businesses and families to invest heavily in the fast-paced growth of the economy through both “liberal and progressive economic policies”.

“Surely, this success trickles down and still leads to more revenue for the government, which is why the government is more interested in targeting tax evasion rather than increasing taxation in general,” Agius Saliba said.

Sant thinks Labour’s fiscal policy is truly tailor-made for the management of Malta’s more ‘local’ realities. And he truly captures the spirits of Malta’s position in the global tax order – just like the airport that serves the passage of labour migrants, Malta is a parking bay for remitted profits from overseas.

“Our economy relies on a deep sub-stratum of what I call ‘hot money’: funds which are parked here for a while or in transit to elsewhere. Should there be a sense that this traffic will be subject to some higher taxation compared to levels prevailing elsewhere, or that the costs of keeping them garaged here will rise, these holdings will be tempted to leave or increase their velocity of passage.”

Sant this is a pragmatic concern, and that it has nothing to with the S&D’s discourse on tax as an instrument for redistribution or green transition. “The latter is addressing the overall European situation. The political discourse in Malta is addressing the needs of a micro-economy that is peripherally situated in a single continental market.”