Issue link: https://maltatoday.uberflip.com/i/754383
9 maltatoday, WEDNESDAY, 23 NOVEMBER 2016 Editorial Tax cuts are not the only answer MaltaToday, MediaToday Co. Ltd, Vjal ir-Rihan, San Gwann SGN 9016 MANAGING EDITOR: SAVIOUR BALZAN ACTING EDITOR: JURGEN BALZAN Tel: (356) 21 382741-3, 21 382745-6 • Fax: (356) 21 385075 Website: www.maltatoday.com.mt E-mail: newsroom@mediatoday.com.mt In presenting a bold proposal for fiscal reform, Opposition leader Simon Busuttil seems to be entering a new phase of what is (from the PN's point of view) an ongoing election campaign. Elections may be over a year away, but the Opposition has already announced that its electoral motors are running. Traditionally, campaigning focuses on two major platforms: turning up the political heat, as it were, on one's adversaries; and remodelling one's own par- ty as a credible, forward-looking alternative government. To date, Busuttil has been criticised for placing too much emphasis on the former, and not enough on the latter. He has been somewhat less convincing in proposing a national vision of his own. A strategic docu- ment for good governance was a step in the right direction; but as policy issues are increasingly drowned out by confrontational bickering, it was time to provide the electorate with a better rea- son for voting out the govern- ment, than just a list of its own defects and shortcomings. From this perspective, Busuttil displays political nous when focusing on the most notori- ously volatile electoral segment: the self-employed, who have collectively played the part of king-maker in virtually all recent electoral turnarounds. And while his proposal for a 10% reduction in income tax for small businesses may sound like a classic case of vote-fishing, there is certainly a case to be made for shifting the fulcrum of Malta's current tax regime to- wards favouring the small at the expense of the bigger players. As all recent governments have repeatedly emphasised (but rarely actually delivered on their many promises), small businesses are the backbone of a healthy economy. There are therefore sound economic as well as political reasons to try to ease the tax burden on this sec- tor. It was Dom Mintoff 's failure to acknowledge this reality that drove small entrepreneurs into the arms of the PN under Eddie Fenech Adami in 1987; it was Alfred Sant's promise to remove VAT that swung the pendulum back to Labour in 1996. Likewise, Gonzi's decision to increase electricity prices may not account for the extent of the 2013 defeat: but it was arguably the body-blow that sealed the overall result. Simon Busuttil is no doubt mindful of these realities, and it is not surprising that he would seek to swing the balance of power back in his party's favour. But there are more than just the Nationalist Party's fortunes at stake in decisions such as these. One consideration is the use of taxation as a means to incen- tivise good practice. The 10% reduction would be tied to the introduction of environmental measures, and to helping out charities or other non-govern- mental organisations. Busuttil also specified that the scheme would apply on the first €50,000 in profit made by any small business, but not to businesses that hire workers in precarious or other exploitative conditions. This raises a few questions: not so much for the PN, but for the country as a whole. In principle there is nothing wrong with linking tax ben- efits to certain conditions, but these conditions should clearly not include practices which are already mandated by law. Local businesses are already legally obliged to meet the basic employment conditions, and to avoid those that are exploitative. Are we suggesting, therefore, that basic law enforcement is so impossible that we must introduce tax incentives for businesses to comply? Another consideration is the role of taxation within the broader spectrum of govern- ment responsibilities. The PN's tax proposal has been costed at €85 million; which translates into a significant loss of public revenue. Investment in health, welfare, universal childcare, infrastructure and public trans - port all depend on adequate tax revenue. Already we are witnessing an evolution in the traditional model of national welfare, with the introduction of private-public partnerships in healthcare. It is difficult to envisage how such a generous tax reduction can be achieved without enlarging the scope of privatisation of the welfare state. Helping SMEs makes social and economic sense; but cutting taxes weakens social bonds, which is an integral part of so- cial responsibility. Rather than slashing taxes, the focus should be on venture capital funds to promote innovation, coupled with greater emphasis on fiscal and social responsibility. One way to help small busi- nesses without hurting tax rev- enue is the creation of a lending fund, designed to incentivise banks to give loans and increase the limits on the amount that companies could borrow. Low interest rates can help busi- nesses pay them back quickly while maintaining a good cash f low, expanding the overall domestic economy, and creating more jobs. Moreover, governments should pay equal heed to bolstering tax revenue through cutting down on tax evasion. In recent weeks, a unit targeting tax evasion through a joint effort between the Inland Revenue, the VAT Department and Customs was set up. While this long overdue unit is welcome, we are still far away from making tax evasion a top priority, especially in the wake of the Panama Papers. Tax cuts for middle earn- ers may make a lot of political sense, and Busuttil's gambit may well pay off. It remains however a traditional approach, to an issue which would be better confronted with more innova- tive ideas.