Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 13th October 2022

Reading the articles in the media during this “silly season”, one is regaled with pictures of congested roads and heavy traffic, which the roads minister blames on permits for street closures during festas.

Such jovial manifestations portray images of happy parishioners during such religious/pagan celebrations of the patron saint giving a snapshot of the pseudo liberation of a young nation released from the strictures of the pandemic. Newspapers carry pictures of smiling women casually dressed in two-piece summer dresses with bare midriffs sporting elaborate tattoos on their arms and legs.

Men are equally triumphant at the late morning festa marches, some inebriated throw caution to the wind and sing pompously along “bandalori” in bedecked village streets.

Quite a congenial throng of political personalities grace these indigenous religious manifestations but then it is all part of our southern Med culture. Many agree it is an effective safety value living on an island with daily revelations of scams, scandals and towering cranes.

Autumn and the first rains herald change. Minds turn to the delicate balancing act that our finance minister has to fight double digit inflation having amassed an extra two billion euro debt incurred during the past pandemic years. Let us discuss the “elephant in the room”, ie the surging inflationary forces that are raiding our economy. The Times editor praises the government for doing the right thing in protecting families and businesses from the immediate impact of rising fuel, energy and food prices by subsidising imports of these essential materials. Very wisely, the editorial reminds plebs that one-off subsidies are not a silver bullet. The text book solution of throwing good money after bad can only last so long.

What goes up must eventually come down. Again, capping energy costs means wastage is encouraged and the rich are subsidized equally as the sans-culotte. It is true that the labour market points to full employment but are we drilling down to eliminate cases of precariat with young families working three jobs just to survive till the next monthly cheque.

The mad rush of third country nationals scootering in congested streets to deliver snacks for a pittance is condemnable. The cost of dining-out has risen and many remark how families are paying double the vat on dining compared to the amount charged in Europe. Still Castille refuses to reduce tax. Using a band aid approach to camouflage fuel and grains inflation is the preferred and only tactic so far.

The finance minister has understandably instructed all ministries to start looking for savings on public expenditure. The man in the street who travelled for holidays this summer is conscious that petrol/diesel charged at the pump are double the rate we pay today.

Last week, the MCESD were consulted on valid proposals for the 2023 budget. One hopes that the minister of finance will listen and recalibrate his fiscal tactics to ensure taxpayers’ money is used judiciously to spread the trickle-down effect of millions being harnessed by speculators in construction. Consider the scene of easy tax money collected by notaries registering a ballooning number of property deals.

Another fly in the ointment is the contractual obligations signed by state appointed directors at AirMalta to disburse millions if and when sacking its 80 pilots (currently manning eight aircraft). Pray, be kind to us and spare us the usual rhetoric on what needs to be done in the year ahead to balance the deficit, encourage economic growth and deal with the various ecological challenges facing the country.

One can only hope the hunt for vat evaders will not be achieved at the cost of further tightening of bureaucracy on small and medium sized enterprises. They are the usual suspects when the screws of compliance are tightened. Perhaps banks also need to slack their stiff risk averse attitude. Otherwise, we must address environmental degradation, avoid the easy solution of reducing cost of production by importation of unskilled labour from low-cost countries.

The mantra of saving 100,000 jobs via furlough schemes has been wired deep in ram of both One and TVM TV stations. Still nobody criticised such a meritorious splurge of tax payers monies yet there results an enigma - the mystery shortage of skilled workers. Observe the recent fall in consumer sentiment largely reflected in developments in expectations of major purchases in the coming months, and to a smaller extent, of their financial situation in the past year. A recent analysis by Central Bank talks of an economy that is happily sailing away in choppy waters.  It is steady as she goes.

Could the enigma of an economy happily firing on all cylinders, enjoying full employment (and a scarcity of workers and 8500 jobless as per Labour Force Survey) be solved if one examines the strength of a burgeoning shadow economy?

This activity which averages about 26% negatively affects economic growth in Malta and left unchecked, the underground economy (UE) would erode people’s faith in the integrity and fairness of the tax system, undermine the competitiveness of honest businesses, as well as cause honest taxpayers to bear the load of those who gain from money laundering and indiscriminate issue of direct orders.

Activities in the hidden sector include skimming, unreported construction-related activities, hidden rental income, and unreported trade-related activity. Needless to observe how our shadow economy is more active than the ones of Greece or Italy. Readers ask how can a country which prides itself of having been recently lifted from the Greylist, still harbours such a high percentage of shadow activities.

Just contemplate on the example given by some members of cabinet resolute not to declare their tax returns. This speaks volumes of the lackadaisical attitude of the transparency and governance regime reigning in Parliament.

Moving on, the finance minister gallantly hopes to fill the coffers by fighting the underground economy and targeting vat dodgers. The truth is that in the 2023 budget, the government faces a Herculean task to collect arrears of income tax, vat or stamp duty because loopholes are wide.

Let us face reality and nurture the popularity of the re-elected Labour party in power. It is emboldened by an overwhelming majority gained in last election.

Perhaps this massive and popular support will turn the tables in our favour oozing the largesse needed to embolden the Illuminati in Castille to weave a credible budget.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 13th October 2022
Get in touch: info@pkfmalta.com