Time to talk about a windfall tax

Former finance minister Tonio Fenech’s proposal to freeze the economy – in his words, give it a ‘time out’ until we bounce back after the crisis is over – is a generally plausible (albeit radical) suggestion in such unprecedented circumstances.

The idea is to get the economy to ‘sit still’: postpone tax collection, waive fees, stop interest profiteering, support landlords in compensation for rent stoppage, and to keep workers employed with subsidised wages.

Another suggestion, from academics like Prof. Godfrey Baldacchino, is for employees to bite the bullet and accept a 20% cut in wages until the crisis subsides.

Meanwhile, Prof. Joe Falzon argues that without a massive stimulus package, Malta could be looking at unemployment rates of 55,000. Likewise, the Chamber of Commerce - which polled members and found just 10% satisfied with Robert Abela’s ‘mini-Budget’ - believes up to 45,000 jobs might be lost.

In a nutshell, Malta is gazing into a future aptly described as its own Great Depression. Only a sensible, bipartisan, and radical reorganisation of our economic model will help us through the next months to come, as we stave off the health repercussions of the coronavirus pandemic.

It is clearly a war on two fronts: public health, and the economy.

Tonio Fenech’s timely proposal also echoes Denmark’s economic strategy. In a deal with trade unions and employers’ associations to prevent mass layoffs, the Danish state agreed to cover 75% of wages of workers threatened by job loss, up to €3,000.

Companies will cover the remaining 25%, while workers will give up five days of paid vacation time. The deal covers companies which would have to lay off at least 30% of staff. In return, companies commit to not lay off any staff while they’re receiving state compensation.

Readers should note that this is not a handout: it is rather an investment; a way of keeping aggregate demand up, to avoid small businesses losing recruitment strength, to maintain economic confidence, and to prevent an even worse economic crisis further down the road.

But the model is not without its pitfalls. If self-employed and landlords are to be compensated for lost business – and even then, only up to a percentage of average salaries – then it is imperative that people on casual and zero-hour contracts are also covered: these being seldom represented by unions.

And it is also arguable that industries who have prospered in the boom-times cannot be expected to have all their costs socialised among the taxpayer.

However, there is another question to put to ourselves. Will the national economic sacrifice of the lockdown, and the call on the state to compensate for loss of business and wages, be accompanied by equally radical contributions back to the State?

In this respect. one measure than might be contemplated is a windfall tax on banks’ profits this year.  Just as we expect the government to provide ‘windfall support’ to ailing businesses… it is not unreasonable that this should be matched by a tax on extraordinary profits.

In 2019, banks like Bank of Valletta and HSBC Malta respectively declared €89m (up 25%) and €45 million (up 24%) in profits: driven in part by net interest income of €152m and €112m respectively (almost half their total income) in a market of cautious, home-owning savers.

But the case here is not to conjure up a jaundiced view of bankers, and arbitrarily confiscate their monies (as has happened in this country before). The simple reality is that local banks have made millions in profits; and their generous subvention, through a windfall tax, would be essential to help the country restore its buoyant economy at the time of the fightback.

Such policies are also necessary to control the health risks of the pandemic: which could be doubly devastating for Malta. Until people’s lives are rendered secure by the State, more people and businesses will be respectful of lockdown rules and the rights of workers affected by the pandemic.

For it will require the State’s same commitment to welfare as ever before, to protect the weakest from falling into a vicious cycle of abuse, exploitation and criminality. Without getting the banks on board – by postponing interest rates and fees, for instance – any stimulus package would be uneven.

In a climate of negative growth, everyone should be expected to join the effort of ‘socialising the costs’. What remains uncertain is whether businesses can even return to Malta’s ‘growth-for-growth’s-sake’ economic model after the crisis is over.

Unsustainable jobs lost in the crisis will not return; technological displacement will further a generational loss of certain human skills; the threat of the virus to our supply chain further puts into question Malta’s construction madness to house service workers (without ecological self-reliance), at the risk of the loss of agriculture.

At this stage, a touch of cautious populism is necessary. A windfall tax will help us bear the pain, ahead of a deep recession that will radically change employment relations.