Is growth without taxation possible?

As Budget 2022 looms on the horizon, Malta yet again faces an age-old conundrum. 

Both government and opposition think that it is possible to maintain the country’s current rate of economic growth, without either introducing any new taxes, or raising any existing ones. 

But at a time when the COVID pandemic has already eaten into Malta’s budgetary surplus – and when questions are being raised about both the golden passport scheme, and Malta’s preferential tax rates – one would be forgiven for asking how this is even possible, under the circumstances.  

Of late, government’s mid-sized community projects are tapping into the monies raised by the National Development and Social Fund: the posterity fund generated by the sale of citizenship. Since 2013, the fund has always provided some booty for the government to finance such projects without the need to raise taxes to finance such projects; and until the administration buckles under European pressure or reaches its limit on the sale of passports, the fund will keep financing certain medium-term capital projects, as well as ex gratia payments to taxpayers. 

Problematically, however, this is happening in the context of categorical declarations by European Commission president Ursula von der Leyen that the sale of citizenship has to stop.  Last June, the EC sent a “formal notice” to the Maltese government requesting the citizenship sale to stop even under the new programme. The Brussels executive said it would proceed with a reasoned opinion – a course that will lead to infringement procedures in the European Court of Justice – should the government’s response be unsatisfactory. 

Clearly, then, this avenue will have to be reconsidered, sooner or later; and it’s not the only one. 

In the current climate, Abela’s government (and all future administrations too) may expect to face calls to tighten international tax rules, to prevent foreign multinationals from using Malta as a way of reducing their tax exposure back home.  

Apart from the OECD consensus on this front, even the probable election of a socialist chancellor in Germany – a fiscal conservative who worked by the side of Angela Merkel as finance minister – will only amplify these calls for tighter rules.  

All this points towards a conflict between Malta’s declared economic policy, and the direction that the rest of the world is clearly taking. As such, it is an unwinnable battle for Abela; and the effects on Malta’s bottom line will be inevitable. 

Even without these considerations, it is in Malta’s own interest to explore other avenues of increasing government revenue. Certainly, Malta has a lot of ‘passive’ income to seize: the FATF decision to greylist Malta identified among Malta’s major shortcomings the weakness in gathering financial intelligence on tax evasion. Close to €1 billion has historically remained uncollected:, attesting to the fact that tax evasion has existed for ages, structurally ingrained in the “ejja ħa nirranġaw” culture which pervades the Maltese way of doing things across the board – from planning and land use, to tax arrangements.  

The question is whether Maltese political parties’ insistence on not raising taxes may actually lower, rather than raise, the standard of living in the near future, where the gap between rich and poor grows. The irony is that while the citizenship sale has been instrumental in plugging the COVID spending hole – as well as social spending – the future of our welfare state seems no longer tied to a pact of national solidarity that is based on income redistribution. 

Instead, it has become contingent on Malta’s exploitation of a vacuum in EU legislation; and from revenue generated from the commodification of citizenship. And it is also circumscribed by the impossible dream of continued, sustained growth. 

Unfortunately, this dream has been pursued in ways that have also reduced our quality of life: with high-rise construction, the extension of development inside countryside, the chipping away at our urban conservation zones… all of which are in themselves drivers of property prices.  

Growth of this sort will only leave people behind; Labour has often resorted to grants to supplement low minimum wages – but refuses to tax more those who have got richer in the last decade. Instead, it relies on a citizenship scheme that weakens the community bond of citizenship (for it is citizenship only for the rich and the visa-free ‘nomads’; not for taxpaying migrants), but also the already precarious bond created by the welfare state. 

Another irony will play out at the S&D conference this week: President and Spanish MEP Iratxe Garcia Perez will impart the message that the EU must live up to its principles when it comes to migrants and refugees; to put in place an EU migration policy in respect of human dignity and based on solidarity between member states.  

Ironically, Malta’s policy – which fundamentally believes in giving first preference to the itinerant rich and global elite for passage into Europe – delegitimises its own complaints about lack of solidarity on the migration issue. How can Malta, which profits from the lack of harmonisation on citizenship and taxation, expect solidarity on compulsory burden sharing?  

There’s a lot to be said for leaders who proclaim themselves to be democratic socialists. Indeed, it is was a reassuring declaration by Prime Minister Robert Abela. But walking the talk is another thing altogether.