Issue link: https://maltatoday.uberflip.com/i/1295506
8 OPINION W ith the budget 2021 set to be the second major challenge for prime minister Robert Abela – following the COBID-19 pan- demic – few doubt that he needs to conjure a rabbit out of the hat. With over €1billion in defi- cit and a national debt to GDP ratio of about 60%, there is little room for any Keynesian largesse. Yet, as the news of Joseph Muscat's resignation sinks in the minds of the party faithful, one cannot but sing his praises considering that during his seven-year tenure as prime minister he succeed- ed to turn an annual state defi- cit into a respectable surplus. Economists have consumed reams of paper to analyse how his stewardship succeeded to bring such prosperity in such a short term. Granted that what appeared camouflaged as virtuous may have eluded the party faithful and kindled an endless crusade for truth by the Iron Lady from Bidnija – a journalist who never minced or sugared her words. Basing her writings on wellfounded research (and cheeky inform- ants who hid their hands and used her platform), she poi- soned the baptismal font. e so called "kitchen cab- inet" formed a coterie of a brilliant gang of Machiavelli schemers (some from Opposi- tion benches call them crooks) who succeeded to sail close to the wind thereby generating affluence. Unemployment and bur- geoning tourism figures were the daily fare on State TV showing how Malta has beat- en larger EU members in daily affluence to become the Swit- zerland in the Med. Regular increases in minimum wage, pensioners bonus and chil- dren allowances endeared the faithful in no uncertain way. e results of two gen- eral elections with record high results for the Muscat "l-Aqwa Zmien" troupe sealed the death knell of the Oppo- sition party - which was sent to run for shelter and indulge in fierce bickering amongst themselves. e bonanza party did not last for long and turned ugly when strong demonstrations paraded the streets of Vallet- ta last November chanting for the resignation of Joseph Muscat and his soup kitchen. Four months later, enter the act one, scene one of an in- trepid Covid 19 pandemic. Certainly the first total shut- down in mid-March was a bolt out of the blue… like a tempest in mid-August sum- mer morning that shattered the artificial affluence and sheared the thin veneer of the propaganda machine at Mile End. e agonizing months of the shutdown had the effect of piercing the veil of an artifi- cial bubble that was not based on external exports but part- ly on the combined results of a runaway building boom, an increase in expatriate work- ers who boosted domestic demand, millions from sale of passports in a deal with an exclusive concessionaire who pocketed commission on total passport revenue and got free all-expenses paid patronage of Joseph Muscat chairing every international conference. Bank interest was low and so was inflation which fanned the fire of speculation in property deals. e proverbial "kitchen cabinet" (peevishly exposed in testimony during the Carua- na Galizia murder inquiry by Evarist Bartolo and Edward Scicluna) stirred their stew in a dark cauldron of goodies. A well-oiled propaganda ma- chine waxed poetic about the explosion of tourist arrivals - mainly composed of the lower end variant, a.k.a. low cost air- lines (sun, sea and cheap beer variety - housed in Airbnb ac- commodation). Rents had shot sky high and as social housing was never given priority this resulted in protests from lower-in- come groups. All this cul- minated in various demands from Employers Association, Teachers unions, and other unions which all chanted that the economy has entered in a cul de sac and the govern- ment needs to bail out the long suffering players caught with zero income (or else face thousands of unemployed). Retail sales and income from hotels dropped considerably. In their quest to recoup losses faced during the lock- down, operators let out a sigh of relief when prime minister Robert Abela, announced an easing of regulations to allow restaurants to open under cer- tain conditions. Castille was offering inter Alia a cash injec- tion of €44 million by way of €100 vouchers (five coupons of €20 each distributed free to residents over 16 years of age) to be spent in catering, hotels and certain shops. e Chamber of Commerce insisted that businesses should be given a clear and safe di- rection on the way forward in a "responsible and structured manner". In its own words, the Chamber remarked that "At the same time the country ought to continue to give due weight to the nation's economic needs as well as the physical and mental health of our people". ese rules will reduce risks regarding transmission of in- fection but of course reduces the number of covers by half. Tables have to be limited to groups of not more than six diners from the same house- hold. Other conditions in- clude disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets. For outdoor dining (which is the preferred option) again, same conditions for distance and family groups apply and no smoking is allowed. Both the Chamber of Com- merce and Employers Associ- ation suggested a fiscal reform to assist the retail, hotels, man- ufacturers and travel sectors. ey expressed their convic- tion that the cost of living can only be harnessed once vat is reduced. Certainly the issue of vouchers was a knee-jerk reac- tion since all purchases were subject to 18% vat plus a small commission charged to retail- ers to cash them. e winter approaches and quoting Eu- rostat, Malta experienced the highest monthly increase in inflation across the EU since last April. Yet Government preferred a populist solution so rather than reduce tax, it opted to issue cash vouchers, furlough workers and guarantee cash loans to entities in distress. An alternative route to help businesses is to achieve parity in vat rates by reducing them to match those charged in oth- er Med countries. It is no secret that Malta was one of the EU countries that registered the highest drop in the total retail trade volume over the past 12 months. is article explains how for exam- ple tax evasion (which is the highest in the EU) can be mit- igated by lowering vat to 7% and carry out on the spot in- spections by Tax Compliance Unit. One hopes that with moni- toring of members by MHRA , this will result in cheaper meals. Luxembourg charges only 3% on food while Germa- ny's stimulus package includes a cut in VAT - for regular goods to 16% from 19% and for food and some other goods to 5% from 7% from July 1 un- til December 31. One salutes the prowess demonstrated by the Bur- marrad guru and hopes that the 2021 budget designed by a reformed "kitchen cabinet" will introduce a fiscal reform in time for the bleak winter months ahead. 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 The legacy of a Burmarrad whiz kid 8.10.2020