Issue link: https://maltatoday.uberflip.com/i/744537
maltatoday, SUNDAY, 30 OCTOBER 2016 15 untold profits enjoy generous tax statuses. How sustainable is this in the long-term? "I would say that is the only real function of the government. If the government fails that, it fails at being a government. OK, un- less you subscribe – as I know you don't – to the extreme rightwing view that governments should only be responsible for law and order. But government acts like an insurance agency in all other things. Not just for the poor, but for everybody. I'm not in the low income bracket; but I could be hit by sickness or disability, or lose employment, or retire. All these things – except retirement, which is associated with an age bracket – are unpredictable. The govern- ment is the insurance agency; you pay the premium, in the form of taxes, and you can make claims. If you have kids, you can claim children's allowance. It's not beg- ging or giving... you have a right to claim it. These are not hand- outs, just as an insurance payout is not a handout. This is the lat- est model. In the past, we talked of the welfare state as 'helping the poor'. Today we realise it's not just for the poor. The government acts as an insurer for the middle income sector... the entire coun- try. Is it sustainable? Is an insur- ance agency sustainable?" Insurance is indeed a very profit- able line of business... but it's still a private business. If a private in- surer is hit by multiple claims and can't pay out, generally speaking he goes under. It's not the same with governments... "True. There is another differ- ence. If you're sick, an insurer can refuse to sell you a policy. He can tell you to go somewhere else. The government can't do that... and of course it shouldn't." On a separate note, the sustain- ability question has been asked in other forms. In its official re- sponse to the budget, the Oppo- sition complained that it 'had no long-term vision'. The govern- ment failed, the PN said, in at- tracting enough new investment and revenue streams. It was still too reliant on sectors such as I- gaming, introduced by the Na- tionalists... "My first comment to that is, it's really surprising – no, not sur- prising. It's really sad that, once you're in a certain position, you see things differently. In certain ways, you see things very clearly; in some ways, somehow... you see investment coming, but for dif- ferent reasons – one, because it's Chinese, and you don't want the Chinese touching your switch; then you get Jordanians who are not so photogenic, and so on. You don't see the wood for the trees. When I'm in Washington with the ratings agencies, comparing all this to other countries... we all see it. But the Opposition can't see it. [...] Whether it's health, whether it's education, whether it's logistics, whether it's a slight extension of the manufacturing sector, pharmaceuticals... there is diversification going on all the time. Shipping, diving, yacht- ing..." He trails off into a plethora of other areas, including the film in- dustry and the English language schools sector. But while this may be undeniable, the question of over-reliance remains a valid one. The presence of I-gaming and financial services depend on favourable tax regimes. By defini- tion, this makes them unreliable... as anyone offering more favour- able conditions can attract them away. Isn't the PN partly right, then, when it says we depend too much on those sectors? "Malta is attractive to foreign investment not just because of taxation. We have certain quali- ties in the service industry. We're commercial people by birthright. Industries and businesses are here for many reasons other than tax; tax is important. We have to re- main competitive..." How can we be so certain that we will, though? As we speak, the Eu- ropean Union is debating whether to introduce fiscal harmonisation across the Union. Both Labour and PN oppose this on grounds of tax competitiveness, but that's not going to be enough to block the measure (unless Malta resorts to a Veto, of course)... "The harmonisation is about bases, not rates. I have the assur- ance of the OECD, even the Com- mission, that they are not out to destroy our tax system. Only to ensure that it will not be abused by other countries. I have dis- cussed this with European finance ministers, and will continue to do so: we have certain advan- tages, we are peripheral... we are not a high tax country like Ger- many or France... our economy is more sensitive to competition, and we want to remain competi- tive. However, we're not going to connive for companies to practise double non-taxation, and avoid or evade tax. Definitely not. And they understand this. It's like trade. Point by point. You give this up, they give that up. That's how it will happen. Through dis- cussion we will reach an agree- ment. It will be hard. But we cer- tainly won't be waving around any vetoes..." Scicluna closes with a warning against any portrayals of Malta's economy as being 'too reliant' on any one sector. "Sectors such as financial services, I-gaming, and so on, are not hanging like a pic- ture on a wobbly nail... so if the nail falls, the whole picture falls. It's not so black-and-white. " Interview Finance Minister EDWARD SCICLUNA defends Budget 2017 from criticism that avoided taking necessary social intervention measures such as rent control or an increase to the minimum wage the market' PHOTOGRAPHY BY CHRIS MANGION