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maltatoday, SUNDAY, 23 FEBRUARY 2014 10 Cabinet papers Cutting the apron strings Some things never change: by the late 60s, the Borg Olivier administration had come full circle, from trying to give a new lease to the property market by promoting Malta as an expat tax haven, to the realisation that speculation threatened the country's social and economic fabric. JAMES DEBONO explores the challenges faced by the second post independence administration NOWHERE are the challenges facing the young nation as elo- quently presented as in a frank memo presented by George Borg Olivier to his Cabinet five months after a second consecutive elec- toral victory in March 1966. Borg Olivier plainly admits the inevi- tability of a British pull out from Malta while expressing concern about the rampant land specula- tion, which risked making the Mal- tese strangers in their own country. Don't take us for granted In August 1966, the newly elected Prime Minister made it clear to his Cabinet that he intended to change the country's foreign policy. His starting point was the party's tradi- tional policy based on "our affinities with the West and with NATO" and "particularly our special relation with the United Kingdom" which was embodied in the defense agree- ment signed after independence. But such a policy was in need of review. Borg Olivier proposed the setting up of a ministerial committee to be entrusted with this task and chaired by himself. In outlining his vision, Borg Olivier betrays a certain frus- tration with the way western powers had taken Malta for granted. "We should make a greater effort to cultivate relations with friendly nations and we must not allow the West to take us for granted." But despite his frustration, Borg Olivier did not look south towards Arab countries or to the Eastern block. Instead he recommended greater contacts with countries such as France and West Germany in Eu- rope and Japan and Taiwan in the East. Significantly, he called on his Cab- inet to become accustomed to "the idea of Britain pulling out of Malta" which meant the loss of Malta's ma- jor employer. In a typically anti-colonialist tone, he spelt out his vision of a future, which ironically only became a real- ity in a different way under his suc- cessor Mintoff. "We need vision in contemplating our future in the world and we must cut the apron strings of our colonial past." On bended knees… for investment In his 1966 memo, Borg Olivier also admits that his government had "gone on bended knees to at- tract foreign capital", giving incen- tives which "we have often denied our people". According to Borg Olivier the only gain made from such a policy was job creation. "Most of these indus- tries have been given free lands, free services (sometimes at an enormous cost as is the case of Comino) and practically all are owned by foreign- ers to whom government has given tax holidays, generous grants, gen- erous loans and permission to spend their earnings abroad." Borg Olivier insisted that the wages offered by these industries to Maltese workers had to be adequate and given central importance in any negotiations. More concretely, he proposed that any contract for any undertaking must first be sent to the Minister of Labour. Borg Olivier also referred to the fact that a large amount of Maltese capital was abroad and spoke of the need to entice it back by offering those repatriating the funds income tax abatement and tax holidays. The perils of speculation In contrast to his own govern- ment's policies, which actively pro- moted property development, Borg Olivier became increasingly aware of the perils of an economic model based on land speculation. "One cannot close one's eyes to the speculation, now rife, in con- nection with the purchase of land," the Prime Minister wrote. He warns that unless action was taken imme- diately "Maltese citizens may soon find it difficult to purchase land to build their own home." He rebuts the argument that speculation is giving more value to land sold at a low cost, warning that speculation goes further than that because "land is sold and sold again, mostly to foreigners, at ever increasing prices." He warns that if this phenomenon is allowed to go on unchecked, "foreigners will con- tinue to earn on our land increasing sums of money, out of which the on- ly benefit that Malta can get is from stamp duties on contracts signed". Among the measures contem- plated by Borg Olivier in his memo is the introduction of a land trans- fer tax "which would increase with successive transfers" and which could be discriminatorily in favour of Maltese citizens and the "com- pulsory shareholding by Maltese in property ownership." An expat's paradise Ironically, three years earlier in January 1963 the Cabinet was pre- sented with a memorandum, which proposed a residency scheme aimed at attracting expats by promising them tax exemption on income earned abroad. The idea was pre- sented as a way "to give a new lease of life to the property market." The memo referred to the need to fill the void created by the de- parture of families working with the British military. This exodus resulted in "serious hardships" for importers, shop own- ers and the government itself due to a loss in customs revenue. The idea was to fill the void by attracting peo- ple of independent means from the UK or elsewhere "who are finding it difficult to live in their own coun- tries because of the inroads which tax on income makes on their earn- ings and pensions." According to the report, these people would only take residence in Malta if their income was exempted from tax. The memo projected that these "visitor residents" would take up, on lease, more than 4,000 fur- nished or unfurnished properties. It was expected that expats would also find Malta attractive due to its cli- mate, low cost of living and the fact that it was part of the Sterling area in a way that transfer of funds from the UK were not subject to any con- trols or restrictions. Apart from expats from the UK, the government also wanted to at- tract expatriates from ex cololnies in Africa who are "loathe to face the rigours of British climate after years living in tropical and sub-tropical conditions." Projections shows that each of these 4,000 families would spend on average £1,000 every year, leaving an annual £12 million in the economy. In this case, residency was clearly defined as meaning that one actually lived in Malta for not less than nine months in any calendar year. The expats were not allowed to earn any income from any em- ployment in Malta unless any pay- ment made here George Borg Olivier Borg Olivier called on his Cabinet to become accustomed to "the idea of Britain pulling out of Malta" In contrast to his own government's policies, which actively promoted property development, Borg Olivier became increasingly aware of the perils of an economic model based on land speculation