NEWS | Wednesday, 20 February 2008

Business-friendly manifesto but...

The Nationalist’s party electoral programme has the makings of a business-friendly manifesto.
The undercurrent of the proposals to cut taxes, reward hard work and leave more disposable income in people’s pockets is the rolling back of the frontiers of the state and consequently giving more space to the private sector, the self-employed and private companies to carry on expanding.
But the proposals cannot be viewed in isolation. The World Bank and the International Monetary Fund have warned about an impending slow-down in world economic growth, partly fuelled by the lacklustre performance of the US economy.
Countries have to take note of the warning signs being flashed on the global stage and need to react accordingly. The price of oil remains high and the cereal market is giving no indication that the price of wheat and other staple foods will yield any time in the near future.
The PN’s proposals try to boost the economy by fuelling consumption thus contributing towards growth. The move towards a leaner government are commendable but they also need to be analysed within the context of an unstable global economy.
More money in people’s pockets bolsters domestic consumption. But any seasoned economist will tell you that in a small market like ours domestic consumption on its own is not enough. We need to have a competitive export sector, whether it’s in goods or services. Reducing taxation is one way of achieving greater competitiveness but it is not the only way.
Targeting a budget surplus by the year 2010 is a healthy conviction. If this target is reached it will stop the yearly increase in interests government is incurring by way of the deficit. If Malta does achieve a surplus situation in its public accounts the island could be a more attractive investment destination.
Among the listed measures, the PN is suggesting a one-year tax-free benefit for females returning to employment for every child they give birth to. This measure should go a long way to ameliorating our placing in the European league of tables where female employment is concerned.
Business-friendly measures also include the removal of inheritance tax not only for the surviving spouse but also for the children inheriting the residential home. This is a fair acknowledgment of all the hard work that all couples put into their residential home only to have found that the taxman penalises them once one of them dies.
The removal of the departure tax is finally an acknowledgment by the government itself that this tax is not in line with the European spirit since it taxes freedom of movement.
The removal of the levy on credit cards is also a welcome move since it reduces the cost of credit.
There is also a commitment to review the car registration tax.
In all probability any changes will be revenue neutral for government by shifting the tax burden from one category of cars to another. The intention to substitute registration tax with a tax linked to carbon emissions is in accordance with the golden principle that the polluter pays. It also sends the green message that if you knowingly pollute than you should pay a higher price.
The proposal to revise the VAT rate on restaurants, even if this is subject to EU negotiations, should also give a boost to the entertainment world since eating out, as a consequence, becomes much cheaper and in keeping with other European countries particularly Spain where there is also a reduced VAT rate on restaurants.
The target to have 25 per cent of our gross domestic product coming from the financial sector is ambitious yet realisable especially with our entry into euro zone. This sector blessed with bi-partisan support has mushroomed in recent years and it is envisaged that it could well reach levels of creating 10,000 jobs.
The biggest test and opportunity facing our country in the next few years is management and good use of the European substantial EU funds our country stands to benefit from. To date the government is allocating the majority of the funds to address environmental and infrastructural problems.
The funds, which could very well be our last big take from the EU, are a once in a lifetime opportunity to build strong environmental foundations and improve infrastructure that has long been neglected.
However, there are nagging questions. Can government sustain the current level of service in education, health and social services by giving up crucial tax income? Can we dream of being the least taxed European country and at the same time retain the current levels of public expenditure?
These questions need answering before the election rather than after. Embarking on a pre-electoral tax-cut spree is one thing. Actually managing an economy that has to face international forces while at the same time not commiting to mitigate any loss in revenue is a totally different ball game.