25 January 2006

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Business Today

Getting the job done

Alternattiva Demokratika’s campaign for justice with landlords is commendable, even if it is somehow ideologically out of synch with the party’s belief in defending society’s lower strata.
The Greens have consistently defended themselves by saying that many, who today inhabit rent-controlled housing are anything but society’s lower strata.
They are partially correct. Many have simply abused the 1939 rent laws to continue living a luxurious life at the expense of legitimate property owners who cannot reclaim the fruits of their investments because of injustice that has been allowed to continue unabated for decades.
The anomalous situation we have today with pre and post 1995 rent laws also creates economic distortions in the form of unfair competition for commercial outlets that have to pay today’s market rents in streets where similar outlets pay just Lm10 a year irrespective of inflationary pressures.
The core issue at stake is justice and in a country supposedly governed by the rule of law that shouldn’t be a hard argument to digest.
On Saturday the Greens came up with an initial set of proposals, which seek to redress the injustice against landlords while protecting the families living in rent-controlled properties from a sudden jolt to their lives.
The proposal to stop the inheritance of rent between family members is possibly the most important suggestion because it seeks to break the vicious circle of abuse. The proviso included in the Greens’ suggestion that the lease can only be inherited between spouses may not go down all too well with landlords who would rather reclaim their property as of now. But in order to prevent social upheaval it is a correct measure.
The complete liberalisation of rents for commercial property should not be much of a problem in a country that has embraced free market policies. The Greens are making a distinction between retail and non-retail commercial outlets, demanding complete liberalisation for the latter.
The Greens steered clear of making suggestions related to rent-controlled retail outlets but a phased approach towards eventual liberalisation to protect the smaller family-going concerns from sudden shocks is possibly the best way forward.
But the Greens did not stop at addressing the injustice against landlords. Their aim is to establish a healthy rental market that encourages more properties to be put on the market in the hope of lowering the overall price levels of property.
Whether that aim is achievable is another issue altogether and would require more steps than simply introducing a flat 15 per cent tax on income from rents.
What the Greens have been very cautious about is any suggestion to introduce a tax on properties that are not an individual’s primary residence. It is a tax on vacant property coupled with an advantageous tax on rental income that could bring back some sanity into the property market. But to introduce such a tax would require a lowering of income tax levels, in such a way as to shift the tax burden from production and work to speculation.
The whole aim of rent reform must not be a reversal of subsequent government policies encouraging individuals to be home-owners. The high rate of home-ownership in Malta is possibly the single most important reason why we do not see homeless people running around on our streets.
But in a properly functioning market individuals and businesses need to have more than one option open to them. Having a healthy rental market that protects landlord rights but also sets out obligations is a desirable development.
What is ironic in the debate about rent reform is that the issue is being pushed by Malta’s third political party, an uncomfortable bedfellow for many of the landlords who have suffered from this injustice. As for the Nationalist and Labour parties, they ashamedly opt for silence.
Where is government in this debate? In 2003 when the president delivered his speech from the throne after the election returned a Nationalist government, rent reform was one of the issues mentioned as being part of the administration’s programme.
Almost three years later all we have is a promise that a white paper will be issued. January is almost up and Harry Vassallo is justified in asking Minister Dolores Cristina whether she will live up to the promise that a white paper on rent reforms will be issued by the beginning of 2006.
Time is ticking and further delays can only mean the perpetuation of an injustice that has dragged on for decades.

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Editor: Kurt Sansone
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