Issue link: https://maltatoday.uberflip.com/i/1062629
27 maltatoday | SUNDAY • 16 DECEMBER 2018 OPINION Aaron Farrugia is Parliamentary Secretary for EU funds and Social Dialogue Aaron Farrugia Digital Service Tax must help, not hinder, Malta's gig economy That's not pro-business HOT on the heels of a damning audit report on the Electrogas report last week the National Audit Office released another report with a detailed insight into the operations of 22 different gov- ernment departments and government authorities. The results are the closest you can get to an auditor's nightmare. The audit reveals several cases of public money spent without an audit trail, cases of credit cards on government ledg- ers without due account and repeated occurrences where the auditors have to state that the information and docu- ments collected from public authority simply make it impossible to ascertain whether public spending was following the rules. Yes, as odd as it might seem to some government operators, we do have rules on public spending. The present public procurement rules were, ironically, revised and streamlined by the Labour administration to fall in line with the Eu- ropean Directive on public procurement which the government and its MEPs in the European Parliament supported in negotiations in Brussels. On paper we have a clear and modern set of rules to ensure public spending is transparent and open to competition. On paper. The practice scrutinised in detail by the National Audit Office re- veals otherwise. The audit reveals a ram- pant and systematic recourse to direct orders bypassing the word and spirit of our own laws. The direct orders men- tioned are not used to fill in emergency situations of a temporary and unforeseen need which would admittedly call for urgent measures. No, in most cases, di- rect orders simply replace or rather just avoid, the competitive process of public tendering. What's more interesting, or rather depressively predictable in 2018 Malta, is that the highest frequency of direct or- ders happened right in the few weeks be- fore the last general election. In the case of the Health Ministry the audit reveals around €6 million in direct orders in just 20 days in May 2017. You can try to read into the exceptions to the rules for open and transparent public tendering, but I can tell you, you will find no mention of general elections as being sufficient reason to go for direct orders instead. Another practice worth uncovering for its odious effect on small businesses is the government's tendency to lump different and unrelated services into jumbo contracts instead of opening up different medium or smaller contracts to operators in the respective sectors. The new EU Directive implemented into our laws was pushed through the Brussels machinery precisely with the intent of opening up opportunities for small businesses. The Directive provides very clearly that insofar as possible, government authorities should cut their procurement offers into smaller pieces or so called 'lots' rather than jumbling up all together. Instead, government practice as recently revealed in publi- cised cases like the cleaning contract in Saint Vincent De Paule, shows the exact contrary: the cleaning company is tasked also with the hairdressing, with the road maintenance and with the architectural services. One can perfectly understand the comfort of having one telephone number to call for whatever need under the sun, but the spending of public mon- ey calls for a management with public conscience, and that necessitates having a look at the rule book once in a while. Many entrepreneurs depend on public procurement for their business growth. Government spending in Malta in fact amounts to roughly one third of our GDP. The practices outlined above point to a very worrying trend for our busi- nesses. A trend which is severely affect- ing our ''less favoured'' businesses, not on the list for direct orders. This trend will also, in the medium-term, inevitably lead to market distortions for the busi- ness sectors involved. In the past weeks I have been ap- proached by a number of businesses expressing concerns about this situation. As a candidate for the European elec- tions I will give a voice to these concerns and other challenges faced by Maltese business in the upcoming campaign. Apart for regular public scrutiny, a num- ber of other tools exist at European level to ensure government is in line with Maltese and European laws on public procurement. We will not hesitate to use these tools to make sure that what we voted for when we chose EU mem- bership does not end up being the dead letter of the law. Before that, I appeal to government to change course and consider respecting its promise of being pro-business. Its actions on public tendering so far clearly indicate it is not. A new digital services tax imposed by Europe would threaten the gig economy and stall the advances in the quality of life of our citizens. We can- not allow this to happen. Rather than try to hastily im- pose a new tax, Brussels should be following Malta's lead to build new partnerships with the tech sector. During the ECOFIN European Finance Ministers meeting a few weeks ago, my cabinet colleague Edward Scicluna was right to urge caution in respect of plans to introduce a new EU- wide Digital Service Tax. There is no disagreement that the digital economy is now fully integrated in society, and the principle of taxation for digital services is generally accepted. But how and when such digital taxes are to be implemented should be considered carefully. As Minister Scicluna said, it is imperative that any new digital service tax should be based on international consensus, to avoid inadvertently inflicting any economic self-harm to the EU. Apart from this, there are still many unanswered ques- tions around how much a tax would be applied and adminis- tered in practice, so a sensible course at this juncture would be to work to develop a global framework in collaboration with the OECD. Malta is among the world leaders in new disruptive industries like iGaming and Blockchain, and this is a huge economic success story of this Government. But we cannot agree to any measures imposed by Brussels that would run the risk of us being squeezed by the rapid growth of developing countries and stronger compe- tition from elsewhere. There is concern that our new fledgling industries could suffer decline without nurture, and without concerted action through partnership between government and business. The new gig economy should be a key part of our jobs and growth strategy. Furthermore, inward investment from iGam- ing has made a huge contribu- tion to quality of life. And while looking at how best to sustain and promote success in finan- cial and technology industries, I am also concerned with how best to ensure that people with talent are given the opportunity to succeed in these sectors. To this end, a partnership ap- proach is critical. Rather than try to hast- ily impose a new tax, Brussels should be focused on following Malta's lead and building strong working partnerships with the tech sector, and arriving at consensus positions. Brussels should look at how the EU can best support the development of the gig economy and how technology companies, as good corporate citizens, can work with government to meet chal- lenges of the future including automation, sustainability and quality of life. Our government's action has a crucial influence on the kind of market Malta becomes. We want a relentless focus on private sector growth across all areas of the country, with more people working in businesses, leading business and setting up business. The role of government is not to pick winners but to support the sectors of the future, and we need to remain active and intelligent by supporting our gig economy – to foster high- growth and high-productivity companies that create good jobs. This demands an understand- ing of business needs, and makes sure that public policy – regulation, procurement, in- frastructure, skills, investment, and planning – are properly aligned and properly coordi- nated, to deliver the confidence and certainty business deserves. This Government's vision is of a stronger economy which encourages responsibility and hardwires fairness into the system. Our economic plan starts with growth and jobs – and we can have no future as a low skill, low pay economy, falling behind other EU countries in high-skill, high-tech manufac- turing and industry. As a government we cannot be neutral about where Malta's future growth comes from. We are in a global race for many of the industries of the future. And we will not compete in the years ahead if new taxes force new business to adopt a low skill, low wage business model. We also cannot allow a new digital services tax to jeopard- ise the opportunities of the gig economy to enhance the quality of life of all our citizens. On this, Minister Scicluna is right to urge caution. Peter Agius Peter Agius is a PN candidate for the European Elections and Cabinet Member for EP President Antonio Tajani