Impunity extends to party financing, too

It may not have come as a surprise to discover that Malta’s two political parties owe more than €5 million in unpaid VAT: mostly accruing from their respective media organisations.  

So much so, that in his reaction MEA director general Joe Farrugia even said it was “a well-known secret” that the political parties’ business model is unsustainable; and that “they set a bad example for tax compliance and it is obvious that businesses feel there is a case of two weights and two measures when it comes to giving what is due to the exchequer.”  

What Farrugia may have been too polite to mention, however, was that private businesses often find themselves in very hot water, when it comes to such matters as unpaid taxes. A 2016 parliamentary question, for instance, revealed that “Since 2010, 1,143 persons had their VAT related-penalties converted into a prison term, varying between 319 in 2012 and 104 last year.” 

From this perspective, the ‘two weights and measures’ alluded to by Farrugia are not limited only to the issue of how much tax is (or is not) paid by the two parties… but rather, what consequences the two parties face (or do not face) when defaulting on their fiscal obligations. 

In the case of lesser mortals, those consequences may – and often do – include prison sentences. In the case of political parties, however… there have, quite frankly, never been any consequences at all: not just for defaulting on due taxes; but not even for failing to meet the terms of the ‘special arrangements’ conceded to them by the Commissioner for Revenue. 

This, however, does appear to be changing. Indeed, perhaps the only surprising aspect of this story is the fact that the tax authorities are finally clamping down – or trying to, at any rate – on this otherwise ‘open secret’.  

This week, it was reported that “The Labour Party’s ONE and the Nationalist Party’s Media.Link recently both received a formal notice from tax officials after repeatedly failing to honour agreements to settle years of unpaid VAT.” 

This contrasts with long decades in which the Revenue Commissioner appeared to consistently turn a blind eye to the issue: to the extent that it did not even respond to media questions “about how the two companies had been allowed to accumulate such heavy debts, and why no concrete action had been taken to remedy the situation.” 

It is, of course, tempting to wave such questions aside with a simple ‘better late than never’. But it cannot escape notice that it is only now – i.e., following Malta’s grey-listing, and its increased international scrutiny of our tax evasion and money laundering protocols– that the authorities felt compelled to take action. 

This would suggest that Malta’s entire culture of political party financing – including, but not limited to, the impunity with which political parties evade tax – is among the many issues that need to be addressed, if Malta is to be removed from that list once and for all. 

But as this newspaper has long argued: the Party Financing Law, that was approved unanimously in 2017, has so far proved toothless in its first five years of operation.  

Apart from many other shortcomings – such as appointing the Electoral Commission as regulator: despite the fact that the same commission is entirely composed of representatives of the two parties that it now regulates – the law was from the outset doomed: partly, for failing to take into consideration the possible use of party media – and other commercial activities – as potential vehicles for tax fraud. 

As AD deputy Ralph Cassar pointed out in this newspaper last year: “[There] is a gaping loophole, probably there on purpose, which allows the indirect financing of PL and PN through uncapped and undeclared amounts of money purportedly as advertising.” 

As an example of this practice, Cassar cited the €70,000 in phantom DB adverts on Net TV; but he could also have included the 2017 revelation that the DB Group was subsidising the Nationalist Party’s entire salary-structure; or indeed any financial arrangement, with any private business, that falls outside the traditional definition of ‘party donation’. 

Simply put, the current Party Financing Law places far too much emphasis on individual, one-off donations; while barely even looking at the complex, back-room arrangements that make illicit party financing almost inevitable in this country. 

Conversely, the discussion must also recognise that political parties do need a (legitimate) source of funding, if they are to fulfil their democratic obligations. And this also extends to their right to impart their own message, and their own political agenda. 

But this cannot come about at the expense of privately-owned media companies, operating in competition with Net and One TV; and it certainly cannot be achieved by creating a non-level playing field, to the detriment of those who have no choice but to abide by their fiscal obligations… or face the consequences. 

And this, ultimately, is why one can only agree with the MEA director, when he concludes that: “what is sorely needed is a revision in the way political parties are financed.” We must, in a word, concede that the 2017 law has failed; and address those failures, once and for all.