No man is bigger than government

The ‘Panama Papers’ scandal has once again exposed the sheer gulf that continues to separate Malta from the rest of Europe when it comes to transparency and governance issues.

This week, the International Consortium of Investigative Journalists published documents which reveal the extent of tax avoidance through tax havens – in this case, Panama.

The documents do not necessarily indicate illegal activity, but shell companies and offshore accounts can be used to mask the origin of financial transactions and ownership. 

With hindsight it is now clear that the earlier revelations concerning Energy Minister Konrad Mizzi and the Prime Minister’s chief of staff, Keith Schembri, came from the same source.

But while Malta’s own Panamagate scandal can now be seen as part of a far wider international controversy concerning tax evasion and concealment of earnings, the very different reactions locally and abroad illustrate just how far we really are from the sort of political standards prevailing in other European countries.

Iceland’s Prime Minister, Sigmundur Gunnlaugsson, has become the first outright political casualty of the scandal: having resigned over allegations that he had concealed millions of dollars worth of investments in an offshore company. 

President Olafur Ragnar Grimsson has been requested to dissolve parliament following widespread protests, and the country will be heading towards an early election.

Simply put, the revelation that high-ranking government ministers (in this case, the Icelandic prime minister) held secret overseas accounts was interpreted as a red line that cannot be crossed in any self-respecting democracy.

Significantly, this was apparent not just to the Icelandic government, which had no option but to resign… it was also immediately evident to the Icelandic people, who made it painstakingly clear that such behaviour could not be tolerated.

Here in Malta, by way of contrast, the reaction was considerably different. Konrad Mizzi’s position as a senior cabinet minister is untenable in the light of these revelations. But unlike his Icelandic counterpart, Mizzi himself seems to see nothing at all wrong with his actions.

Not only has he resisted taking the only honourable course of action left available to him – which is to resign forthwith – but Prime Minister Joseph Muscat has likewise defended his disgraced energy minister, even in the wake of the Panama Papers, which confirmed the allegations.

This is unacceptable, and Muscat’s excuse – to await the outcome of a tax audit on Mizzi’s overseas interests – does not hold water.

The only reason why one would conceivably register a company in Panama is because it is a secretive tax haven which will not cooperate with tax authorities from other countries or reveal any information. The issue here is not the amount of money held in these accounts (which in any case cannot reliably be quantified by a tax audit); it is the suspicious secrecy with which Mizzi has acted, which runs directly counter to the principles of accountability.

By refusing to acknowledge this, Muscat has created a problem for his own government. The longer Mizzi and Schembri hang on to their positions, the harder Muscat will find it to occupy the moral high ground which won him the 2013 elections.

How can the government defend a senior minister’s use of an offshore company, when this is clearly intended to make assets untraceable to the minister concerned? How can Schembri, Muscat’s right hand man, expose his own Prime Minister to such a high degree of suspicion? 

Separately, the Panama Papers have also exposed the weak foundation on which Malta’s economy is built. Unpaid taxes in 2008 amounted to some €731 million, and the figure has since then fallen to just over €600 million: €400m of which is deemed ‘uncollectable’. 

This illustrates how tax avoidance is another word for theft. Of course, it is practised in almost every part of the world at every single level, where the right conditions allow it to happen: from undeclared labour to big businesses exploiting loopholes to minimise their profits and avoid paying any tax. 

But there is another dimension of larceny: profit-shifters who scour the world for tax jurisdictions which make it easier for their profits to look smaller; and then, to tax those profits as little as possible. 

It’s this kind of tax avoidance that has been artfully packaged under the convenient reasons of ‘competitiveness’ and ‘efficiency’, ‘job creation’ and ‘economic growth’, which our own MPs will continue to defend, even as the Panama Papers lay bare the inequality that offshore centres and similar EU-blessed regimes keep propagating.

But there are also long term political implications for Muscat’s government.  If Muscat does not act immediately, he will end up becoming a lame duck: not unlike his predecessor Lawrence Gonzi was for most of the previous legislature. 

Unless Mizzi and Schembri go, doubts regarding their actions will linger for the rest of the term, and Muscat will be reminded of Panamagate at every turn.  Such doubts will paralyse the government, and make it impossible for Muscat to govern the country. 

Panamagate has become an electoral albatross around Muscat and Labour’s neck; and the more the government drags its feet the more damage will be inflicted on Labour’s chances of winning the next election. 

No man is bigger than the party or government. Nobody is indispensable and if Mizzi and Schembri really are irreplaceable then Muscat has a dearth of talent within his ranks.