Issue link: https://maltatoday.uberflip.com/i/1258142
11.06.2020 8 OPINION I t is not easy to laud the efficacy of the mini budget unless one sees the fig- ures in perspective. It appears that the stimulus will cost around €900 million and the deficit will reach 7.5% of GDP by end of 2020. According to macroeconomic fore- casts, the government is predicting that Malta's GDP will shrink by 5.4% in 2020 and increase again by 3.9% next year. In perspective, this contrasts with the austerity budget launched by the Nationalists party in the wake of the financial crisis when in 2009 we regis- tered a recession. In the latter budget the belt tightening was principally on ratcheting high water and electricity and fuel charges. In 2009, unemployment was kept in check mainly by directly funding the wage bills of selected large-scale em- ployers by the government. Naturally, nothing compares with the global re- cession caused by the pandemic which originated last December in Wuhan China. is virus has spread like wildfire in a few months, crippling the global econ- omy and leaving many persons dead. e constituted bodies had pleaded with the government to dig deep in its reserves and their wishes were heard as more than €2 billion were borrowed in government bonds - pushing the total deficit close to €7.5 billion. Be that as it may, the patient needs all the help and encouragement to stand up and start walking. e mini budget announced this week is a bold one and is well designed to stimulate demand. It takes a calculated risk that there will not be a second vicious wave of Covid attacks. For example, fears of a second wave of the coronavirus might push consumers to save, despite government incentives to spend, while companies might be tempted to sack idle workers regard- less of the offer of a wage supplement (now extended by three months). Starting with the demand boosting idea of giving 260,000 voters vouchers each worth €100 which can be cashed in restaurants and other shops is a cool way to promote single diners sporting a treat of a gourmet pizza, wine and coffee. Obviously, a better idea is to re- duce VAT on dining as Germany just did, knowing the tax evasion in Malta is a national sport. any reduction in vat rate on catering will be recouped by a better fiscal morality. e drop of roughly 2% on petrol and diesel prices is very welcome albeit in- ternational oil price fell by over 50%. But of course, as tax on fuel is a prima- ry source of state revenue, one thanks heaven for little mercies. For the devel- opers' lobby, the going was good as an- yone buying property up to €400,000, the current 5% duty will drop to 1.5%. For the sellers, the 8% duty will drop to 5%. is works out at a maximum of €26,000 saving in tax per each transac- tion. It will cost the government some €32 million. More good news for the first-time buyers scheme, as this will also be ad- justed so that those who had bought a garage would still be eligible. In-work benefits will also be improved for low-income families. Married couples who faced disruption and wasted costs due to COVID-19, can claim a com- pensation of up to €2,000. e mini budget also set aside a €3 million fund to help NGOs, whose income was se- verely hit by the impact of COVID-19, plus €2 million will be allocated to homes of the elderly. e truth is that with the ports and airport reopening in three weeks time, one hopes that the arrival of adventur- ous tourists will again grace our shores and regenerate the hospitality sector (MHRA expects a full recovery may take two to three years to reach the three million mark - a 2019 trophy). e boldness of this latest recovery plan is pennies from heaven. For coun- tries around the world already facing serious COVID-19 outbreaks, the sol- idarity, compassion and collaboration of local entrepreneurs that we are wit- nessing are a testament to the power of local resiliency. e official records show a mere 4,000 unemployed in Malta. As a general note, for government and businesses, combining bold strat- egies may be their best chance of get- ting the economy going again. Which aspects they start first, between open- ing schools, airports, ports, workplac- es, shops and restaurants, should be a country-by-country choice. But in Malta's case, there has been a courageous gang whose attitude that fortune favors the brave. We will only be able to get out of this crisis together. If we fail to help each other, we risk a serious relapse, making the recipe for a crisis turn into a depression. Ultimately it should be clear: the only long-term strategy to eradicate this vi- rus is a COVID drug and/or vaccine. is type of development supposes that one has at least a few dozens of research universities that work very well in vitro and testing first on animal models, followed (if successful) on pa- tients. Given this knowledge, we shouldn't plan for an economic and social re- covery in under a year, simply out of hope. In parallel, preliminary work has started in some European countries on what the next phase of recovery will look like and the role of strong public action in boosting demand, providing replacement income, and facilitating new investments. A successful recov- ery phase can help build prosperity and resilience, by contributing to the long-term potential and sustainability of Malta's development pathway. ere are encouraging signs from some countries – including China, Germany, and South Korea – that are also looking at green elements as part of their recovery. Taking Berlin as a model country which is in recession, it announced a vigorous stimulus pro- gramme last week. Among the planned initiatives, one stands out in particular: the decision to reduce VAT by three points until the end of 2020. It takes nerves of steel for a government to concede some €20 bil- lion in tax revenue. It is no small feat. e new measure marks a significant shift in mentality at the very top in what Céline Antonin, a specialist in the German economy at the French Ob- servatory of Economic Conjunctures, said represents "a shift in Germany's economic paradigm". Malta never dared to reduce con- sumption taxes or accede to introduce a lower corporate tax for SME's. By contrast, Berlin's bold move to reduce VAT reflects the government dedi- cation to regenerate demand. "It is a simple and direct way to encourage individuals to start consuming again, quickly", explained Pascal de Lima, chief economist at the financial con- sulting firm Harwell Management. is stimulus is combined with other measures – such as paying each house- hold €300 per child or extending short- term work contracts. Critics disagree by saying that it is risky to lower the VAT when tax evasion is low. It goes without saying that it is im- perative that leaders increase resilien- cy. To do so, governments must gain public trust in order to act effectively and efficiently, and ideally the private sector must work with governments to ensure local preparedness and re- sponse. Another way to increase resiliency is for civil society to be a watchdog on corruption, cronyism, wastefulness, excessive bureaucracy and poor gov- ernance. Wanted - a recovery plan on steroids George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island