Selling citizenship to plug a revenue hole

It was the political decision to slash the top rate of income tax from 35% to 25% that led to the financial hole, which is being plugged by a reprehensible citizenship scheme.

James Debono 22 November 2013, 12:00am

4 min read

Let's face it - money does not fall from the sky. The PN government left the PL government a fiscal legacy, a revenue hole resulting from the reduction of taxation from 35% to 25% over a period of three years.

Malta already had one of the lowest top rates of income tax in Europe. Belgium has a top rate of 50%, Germany and France have a top rate of 45%, Spain a top rate of 42% and Ireland has a top rate of 41%. It is only Baltic States that pride themselves of having a low tax regime, but these are marked by wider social inequalities.

After years of demonising taxation as an instrument for redistribution of wealth, Labour took the plunge, accepting the PN's pre-electoral tax cut. One may argue that this was an electoral ploy and that Labour had to oblige not to lose its chance to govern. But Labour's discourse over the past years was already heading in that direction: a demonisation of taxation in the name of a business-friendly economy.

Muscat himself criticised the PN for not reducing taxes in 2009 when the world was passing through the worse crisis since the Great Depression.

Writing on l-orizzont, parliamentary secretary Owen Bonnici lauded the new citizenship scheme as a visionary way of securing funds to fund programmes in health, education and social welfare. On his part, the more right-wing colleague, home affairs minister Manuel Mallia asked: "what do you prefer, selling citizenship or more taxes?"

Therefore: not only is half the projected income from the citizenship sale being used to plug the deficit hole, but social spending is being made conditional on income from the national development fund that will be funded from income from the IIP.

This means that the future of our welfare state is no longer tied to our national solidarity pact based on income redistribution, but is now tied to Malta's exploitation of a vacuum in EU legislation and from revenue generated from the commodification of citizenship.

In this way, the citizenship scheme not only weakens the community bond of citizenship but also the already precarious bond created by the welfare state.

Surely Labour has not reinvented the wheel. Previous Nationalist governments have devised a fiscal regime which attracts companies who invest here to avoid paying taxes in their country. Malta is not alone in Europe in devising similar systems. But we may well have created an over dependence on sectors like financial services and the gaming industry which could put the whole edifice in danger if these loopholes are plugged.

What the crass sale of citizenship has done due to its sensational appeal to the international media, mainly because the concept is somewhat bizarre, is that it has opened a window on the mechanics of the Maltese structural exploitation of fiscal loopholes.

This was the main message coming from the feature produced by the RAI 3 journalists on Ballarò. For while some newspapers superficially compared Malta to cash strapped economies, Ballarò exposed Malta as an outpost of rogue capitalism.

This approach is problematic for two major reasons. The first reason is that it completely deligimitises Malta's complaints about lack of solidarity on the migration issue. For how can Malta, which profits from the lack of harmonisation on citizenship and taxation, expect a change of treaties to make burden sharing compulsory?

Moreover the legitimacy of Malta's argument for moral burden sharing is dented by the image of a country which threatens pushbacks while giving red carpet treatment to the rich. It also exposes the blatant discrimination in citizenship laws, which make it extremely difficult for foreigners working here to apply for citizenship through naturalisation.

The second reason is that Europe and the world in general have become more hostile to countries, which exploit loopholes for their own fiscal advantage. The pressures to harmonise citizenship and taxation rules is bound to grow. Probably it will come in small incremental steps which might give us enough time to adjust.

Curiously the greatest pressure for harmonisation will be coming from Muscat's European partners.

In their 'Alternative Vision for Europe', the European Socialists promise that they "will fight to bring in common company tax rules to simplify the tax law jungle, cut the scope for tax avoidance by multinationals and prevent erosion of the tax base. With just one set of rules throughout the EU, even if tax rates differ, it will be easier for businesses but harder for tax cheats."

At the end of the day pressures on this front are bound to increase with time. The citizenship sale simply makes our position more vulnerable.

James Debono is MaltaToday's chief reporter on environment, planning and land use issues, ...

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truthbtold: you have obviously not followed the debate on this issue. Had you heard Dr. Owen Bonnici explain in detail about the ver rigorous due diligence to which applicants will be subjected to, you would have understood the seriousness of the IIP . I am sorry to note, that you have allowed the PN especially its leader, to fill your mind with ridiculous comments about very rich people applying for social housing etc.. as you have more or less written !!!

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What has "pushbacks"of illegal immigrants, when they are only economic immigrants and not those deserving refugee status, who only bring with them enormous problems for our country, got to do with very rich people who would be contributing many millions of euros which will be used for the development of Malta and for raising the standard of living of our people ???

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Since this Income Tax decrease was a gonzipn/PN idea tell us how they were going to plug that hole the PN , genius.

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James, One does appreciate that you called the scheme an Individual Investment programme for that is what it truly is. Unfortunately the gov let the PN maliciously steal a march by labeling it a citizenship for cash scheme. Investment in our education and primary welfare by rich prospective citizens is the surest and soundest investment to provide for a future healthy and highly educated generation. Much better than the often trumpeted fly by night supposed prime investors who suddenly disappeared after a few months leaving a trail of debt and workers out in the cold as was often the case. I do however agree that the scheme should have been presented better to make it clear that this is an imaginative highly beneficial scheme to fund some of our most generous programmes when it comes to stipends, schools,medicines, free education and health. The only other immediate change which the present gov should accept is to ring fence the revenue and use for budget items which invest in and develop further the opportunities and health of our future generations Thus they will become professionals of the highest order and generate jobs and growth and in the process continue to raise living standards. What better for a foreign investment which will also bring satisfaction to the donor.

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James I have been one of your worst critics in recent months but having said that I must commend you on this opinion with regards the government incentive for selling Maltese citizenship. For those that are still blinkered by party loyalty let’s get this one right and admit that the political inexperience and brash promotion from the PM and the more seasoned legal mentality of Manuel Mallia leaves more to be desired. The real checks and balances from this treasonous action have not been addressed by the disjointed opposition nor has the government applied common sense to explain what the costs to the real Maltese citizens would be in the future. The average donation of 650,000 euros might seem an accommodating amount but nobody seems interested to explain to the Maltese tax payers what the costs and benefits obtained by the new Maltese pretenders especially if they have a big family with children to educate and parents to receive social benefits and free medical health.. One must not forget that only the main principal dishes out the 650,000 euros, while the rest of the family are adjudicated at a much smaller fee. The rest of the checks and balances which you have focused on are also very important considering that the EU is trying to bring in legislation to stop tax evasion and hidden bank accounts. What would happen if someone bought into this citizen scheme and then Malta must bring in EU accountability laws or financial taxes that are on the EU agenda and thereby the benefits of Maltese citizenship evaporate? Considering that today the PM is in Miami speaking at a Henley conference bundled with third world Caribbean countries does not give Malta much to go by. These small islands have better beaches, sun and fun but their citizens’ way of life is shameful to write about. Perhaps the opposition needs to remind the PM and his accolades that promote this treasonous scheme that Malta needs to make its mark in the European Union first, before trying to impress and attract people from the rest of the world whose only interest in Malta is their own greed at the detriment of the real passionate Maltese citizens.

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James, (1) Income for social services does not fall from the sky; you know, like we were promised it would from EU coffers. No one told the blinkered herd of mutton that we would contribute with our VAT revenue to whatever the EU would grudgingly hand back to us, after retaining a nice chunk to feed its bureaucracy. But most persons are naive, and would believe even that there exists superior beings! (2) Also, you must account for the fact that less taxation would result in more disposable income in the citizens' hands. Therefore more consumption, hence more taxes. Hopefully, the net result would be a larger amount of tax money than before the reduction in rates. (3) As I also state, Malta was not born with a silver spoon and has always been dependent on war to make a living. Now that major wars are scarce, Malta must reinvent its income sources. Unfortunately, the PN, feigning strong attacks by unions, eliminated the Dockyards, which was the cradle of technical knowledge and provided Malta with this expertise. Therefore, we have had to seek fresh ways to earn a living. And what could a small little rock in the middle of an ocean do to earn money? You know the answers to that one, though do you? (4) Oh please, do not give that "international press" bullocks! You do know who is Malta's correspondent to Associated Press (and others) now do you? Talk about coincidences! Incidentally there were other far less hostile media that had their say on the matter. (5) You are right about tax loopholes being squeezed. But till then, we will follow the example of far larger countries with far larger economies. In the meantime, we should expand our horizons with schemes just like the IIP, ready and waiting for the time we will rely on them more than now. But there are other areas this administration is tackling, albeit related to expanding the services sector related to maritime and air sectors. (6) Bully for the Socialists for trying to hammer down their national tax revenue. And bully for us for attempting harder to take it away.

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AND PLEASE TELL ME WHO CREATED THIS REVENUE HOLE? WASN'T IT THE NOVEMBER 2012 BUDGET THAT HAD PROMISED FINANZI FIS-SOD ON THE EVE OF THE ELECTION THAT CREATED THE HOLE. SO WHERE IN HEAVENS NAME CAN THE NEW ADMINISTRATION GET THE MONEY TO PLUG THE HOLE WHICH HAS TO BE PLUCKED OTHERWISE WE WILL BE HEAVILY FINED BY THE EU. WHO WAS IRRESPONSIBLE TO THE NANO DEGREE FOR SUCH CALLOUS DECISIONS.? THE ANSWER LIES PLAINLY OBVIOUS TO ALL THOSE WHOSE MIND IS NOT BLINKERED BY SCRAP PAPER - IT IS THE PN WHO CREATED THIS HOLE, THE PN WHO TRIED TO TAKE POLITICAL ADVANTAGE COME WHAT MAY.

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The 5 billion of euros of debt and its servicing is not a hole of gargantuan proportions James? And who left this legacy to our kids? This is an enormous hole and unless we address it it will overwhelm us. The Pn always had the best politicians: they only care about getting elected. To hell with debt, burden sharing and sustainability and truth! As for your' red carpet treatments to those who want to invest: why Not? James you cannot be conservative one day and therefore in favour of capital- and against the 'rich' the next day! You have to make up your mind clearly, though on the other hand we know where your heart beats and bleats-the PN- and this, notwithstanding, is your cherished right.