EPaper

Festa galore and crowning of underground economy

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

GEORGE M. MANGION gmm@pkfmalta.com George M. Mangion is a partner in PKFMalta an audit and business advisory firm

“The man in the street, who travelled for holidays this summer, is conscious that petrol/diesel charged at the pump is double the rate we pay today. Next month, the MCESD will be asked for proposals to be considered for the 2023 Budget.”

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 personalities grace these indigenous religious manifestations but then it is all part of our southern Med culture and is an effective safety value living on an island with daily revelations of scams and scandals while our police commissioner is busy checking the colour of new bathroom tiles for a recently acquired detached villa with pool (perhaps it is a sign of the times).

Could it reflect the delicate balancing act that the 2023 Budget our minister has to fight inflation having amassed an extra €2bn debt incurred during the past two years? Let us discuss the “elephant in the room”, that is, the surging inflationary forces that are raiding our economy.

The Times of Malta 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 and we have either to raise new taxes or cynically perform a miracle aka Joseph Muscat during l-Aqwa Zmien.

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 time has come to revise the COLA adjustment to reflect the real cost of living increases. The price of a typical imported foreign beer has gone up almost 35% since the beginning of the year.

Price of local beer will probably rise again this winter. Using a band aid approach by Castille to camouflage fuel and grains inflation is the preferred and only tactic so far. The minister of finance 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 is double the rate we pay today. Next month, the MCESD will be asked for proposals to be considered for the 2023 Budget.

One hopes that the minister of finance will recalibrate his fiscal tactics to ensure taxpayers’ money is used more judiciously to spread the trickledown effect of millions being harnessed by speculators in construction. Consider easy tax money collected by notaries registering a ballooning number of property deals.

Remember the 1,000 promises muddled through at the preelection manifesto; some of them such as the metro and the Gozo tunnel are politely erased from our memory. 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 mediumsized 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 low-skilled labour from lowcost 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 wondered why with such a gallant splurge of taxpayers’ monies nurturing the hospitality sector, there is still a shortage of skilled workers. Reading through the last Central Bank of Malta’s monthly economic assessment, one reads inter alia, that consumer confidence turned negative, falling to -6.1 in June, from 0.4 a month earlier, but remained above its long-term average of -10.1.

The recent fall in sentiment is largely reflected in developments in consumers’ expectations of major purchases in the coming months, and to a smaller extent, of their financial situation in the past 12 months. This analysis talks of an economy that is happily sailing away in choppy waters. According to CBM, it is steady as she goes. Could the paradox of an economy firing on all cylinders, enjoying full employment (and a scarcity of workers) be the result of a burgeoning shadow economy? This activity, which averages about 26%, negatively affects economic growth in Malta and reduces tax revenues, putting pressure on government’s ability to provide the services and benefits.

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. Activities in the hidden sector include skimming, unreported construction-related activities, hidden rental income and unreported trade-related activity. Another study by the CBM estimates how the size of the shadow economy increased from 9.6% of GDP in 2000 to 26% of GDP. Proud to proclaim how our shadow economy is more active than the ones of Greece or Italy.

The example given by some members of Cabinet not to declare their tax returns speaks volumes of the lackadaisical attitude of the transparency regime reigning in Parliament. 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, government faces a Herculean task to collect arrears of income tax, VAT or stamp duty because loopholes are wide.

The re-elected Labour party in power is emboldened by an overwhelming majority gained in the March election. Perhaps this will turn the tables in our favour oozing the largesse needed to embolden the Illuminati in Castille to weave a credible budget. Fortune favours the bold.

Business

en-mt

2022-08-14T07:00:00.0000000Z

2022-08-14T07:00:00.0000000Z

https://maltaindependent.pressreader.com/article/282024741043281

Malta Independent