‘The day the strength of Malta failed…’

As you will probably already have noticed, I have a certain fondness for using memorable quotes as headlines. There’s a reason for that, you know; and oh look… I can sum it up in a single (rather famous) quote, too:

“Seek, and ye shall find”.

Yes, indeed, folks. My experience has taught me that, no matter what your article is actually going to about: there will always (but ALWAYS) be some kind of snappy little one-liner, somewhere, that will fit it like a glove. (Or as Liam Neeson puts it in ‘Star Wars Episode One – The Phantom Menace’: “There is always a bigger fish…”)

Then again, however: there are also those famous quotes that I’ve always wanted to use… but somehow never found the right opportunity. And there’s one in particular that I’ve my eye on since… ooh, 2002, I think. (Or whenever the first instalment of Peter Jackson’s ‘Lord of the Rings’ trilogy came out.)

This one, to be precise: “I was there, three thousand years ago. I was there, the day the strength of [Malta] failed…”

Ok, let’s overlook the minor technical difficulty that… for the sake of chronological accuracy, I’d have to wait until at least October 8, 5,021 to actually use it... (even if I could easily by-pass that obstacle, just by arguing that… um… “The Future is Now!”)

No: personally, I’d like to think the real reason I never used it before is… well… a bit like another little quote from ‘The Lord of the Rings’ (the book, this time): “Courage is to be found in the unlikeliest of places.”

To put that another way:  I never really expected a little country like Malta to successfully (and indefinitely) resist wave after wave of orcish attacks on its national tax sovereignty… at least, not when so many other small European countries had already capitulated on the same issue. Cyprus, Luxemburg, Ireland, Latvia, Estonia, Hungary, Gondor… (speaking of which: Where WAS Gondor when all this happened, anyway…?)

In any case, you can see where all this is heading. “Our list of allies”, so to speak, “has grown thin.” And it is hardly realistic to expect that Malta – alone, unaided, and without even any Eagles to come flying to the rescue at the end - would single-handedly stave off the invading hordes… FOREVER.

This was never likely at the best of times: still less, when the assault itself took the form of a common, mutually agreed policy by the OECD:  in other words, the equivalent of a ‘Last Grand Alliance’, under the control of the world’s richest and most powerful countries; a siege that not even the Black Gate of Mordor itself could realistically have withstood for long…

So make no mistake: it was inevitable that Malta’s resolve would eventually crumble, in the end; and that Finance Minister Clyde Caruana would sooner or later be forced, against his will, to cast Malta’s ‘One Ring’ – our only real competitive advantage, in a highly competitive world - into the fires of Mount Doom.

But still. All along, I must admit there was a small part of me that held out in hope (“a fool’s hope”, no doubt) that… erm… wait a second here. Who knows? Maybe Galadriel had a point after all, when she said that: ‘the time will soon come, when [the little countries] will shape the fortunes of all’. For, unlikely as it may seem… Malta did (and still does) have perfectly valid arguments, to defend what’s really at stake here: i.e., our country’s sovereign right to establish its own tax rates, as and how it sees fit.

And besides: nothing was really certain until last Friday, either. Before that fateful moment, when Caruana announced that Malta had ‘accepted the OECD’s tax pact’…. there was still a small chance – OK, make that a microscopic chance – that common sense might actually prevail, in the end.

In more realpolitik terms: there was a chance that the government of Malta might successfully argue its case, before the Council of Elrond, that…  sorry, but this ‘15% flat tax rate’ you are proposing will only create an automatic non-level playing field, for small, peripheral economies that lack any other means of attracting foreign investment to their shores…

There: not exactly an unconvincing argument, is it? That’s probably why it is (or was) the position of the Malta Business Chamber, too: whose president, Marisa Xuereb, recently described our taxation system as “the only thing that remains, for an EU member state to balance out whatever other disadvantages it might have.”

Funnily enough, it is also about the only issue, in this entire country, that both Labour and Nationalist Parties actually agree on, for a change. (Except, perhaps, hunting and trapping; defending the construction industry; relying on businesses for ‘donations’; and… erm… a whole bunch of other stuff, now that I think about it…)

But never mind all that, for now, because… it was to no avail, in the end. And to be fair to Clyde Caruana, I can’t exactly blame him for throwing in the towel, either. (It’s like Maximus Decimus said in ‘Gladiator’: “People should know when they’re conquered…”)

All that remains, I suppose, is to look at what sort of ‘deal’ Malta actually walked away with in the end… and – just to use yet another quote (this time, from Caruana himself): “Every country is bowing its head to the agreement. This is because even if no other country agrees on it, countries can still tax the difference between what Malta taxes locally and that 15% elsewhere…”

Now: apparently (because the article also provided a very helpful ‘explanation to Caruana’s explanation’), that translates into: “If a multinational company with a local branch in Malta pays a 5% tax rate on the island, other countries will still be able to order for the remaining 10% tax to be paid in their home country….”

And yes, I suppose it does offer at least a small crumb of comfort: for the implication there is that any FDIs that Malta may have already successfully attracted, in the past, will have no real reason to ‘up and leave’.

To (unnecessarily) explain it further still: wherever in the world they choose to go, they will still end up paying the same 15% anyway. So… who even cares, ultimately, if 5% of that ends up going to Malta… and the rest to some other EU member state?

All the same, however: “Houston, we have a problem (Actually: make that two. Do you copy that, Houston? Two problems, not one…”).

The first is that this compromise doesn’t address the core argument AGAINST Malta’s preferential tax system to begin with: the fact that it clearly discriminates against local companies, which do not qualify for the same 30% tax ‘discount’ offered to foreigners.

Naturally, I’m not naïve enough to believe that this injustice – for an injustice it clearly is – was the driving force behind the OECD’s onslaught; either way, however, those Maltese companies certainly did have genuine cause to complain about the status quo.

And… well, they still do. Simply put: this ‘pact’ does nothing whatsoever to ‘level out the playing field’, for local companies currently competing in the Maltese economy. All it does is make it a lot harder for Malta to continue competing internationally, that’s all: which, naturally, leads us the second of those small problems I mentioned earlier.

Yet again, there’s another well-known saying that fits it rather well: this time, from the typical Maltese school playground: “Min hu gewwa, gewwa; min hu barra, barra…”

In other words: this pact may not directly threaten any existing, established company, of the kind that is already here; but… what of the future? How are we to entice more FDIs tomorrow – which is when Caruana so recently promised us a ‘transformation’ of our economic model - when we have just been forced to throw away the only competitive asset we ever had? (“The only thing that remains, for an EU member state to balance out whatever other disadvantages it might have,” remember?)

And more to the point: how, exactly, can Malta also be expected to maintain – still less, improve upon - its current rate of economic growth?

Because that’s another thing: I suspect Caruana was being overly polite, when he gave the above explanation for why ‘every country is bowing its head to the agreement’.

As we all know, however, the real reason is that all those countries were simply held at gun-point (almost literally, too: there were threats to ‘suspend Veto rights’; to ‘withhold Covid recovery’ funds; to ‘reverse the polarity of the neutron-flow’… you name it, they threatened us with it…).

And, well, guess what? The same forces that held a gun to our head, and compelled us to acquiesce to its ‘tax pax’ against our will… also insist that Malta – and all other EU member states – has to maintain a steady, 3.8% annual growth in its GDP: each year, every year, and for all time…

It’s called the ‘Growth and Stability Pact’; and of course, all the usual EU disclaimers apply.  “Resistance is futile”; “What’s good for the syndicate, is good for the entire Universe”; and, most important of all: “failure to comply comes with all the usual penalties and fines…” (unless, of course, you happen to be either Germany or France… in which case, it’s: “move along now, there’s nothing to see here…”)

But… ah well. As Sam Gamgee would probably have put it: “There’s no use crying over a few spilt lembas crumbs, Master Frodo.” And besides: while the deal itself may be rotten to the core, for small, peripheral countries such as Malta… let’s look on the bright side for a change.

It’s good for the richest and most powerful countries in the world, isn’t it? And, well… wasn’t that the whole point all along?