Panic

Maltastar



The public finance position statistics for November 2002 just issued by the NSO could throw some light to the panic changes in the tax legislation proposed by the Ministry of Finance in December 2002.

The published deficit for the 11 months to November 2002 was given at Lm110 million.` This is after extraordinary receipts of Lm21 million from the privatisation of MIA and Lm7 million from the Investment Registration Scheme.` Both sources are one-off deals which very arguably and unconventionally were taken as ordinary revenue. Without this unorthodoxy the deficit would have come in at Lm138 million compared to Lm96 million on a like for like basis in the first 11 months of 2001.

Let`s for a moment put aside the unorthodoxy and accept the figures as published. To hit the Lm77 million projected deficit for the full 12 months budgetary period 2002, the month of December 2002 had to be net cash-positive for government to the tune of Lm33 million.

`The published deficit for the 11 months to November 2002 was given at Lm110 million` December of 2001 resulted in a net cash positive position of Lm11 million. December of 2000 proved to be net cash negative for `Lm6 million.` It is not useful going further back as Provisional Tax payment regulations were changed in 2000 to shift more revenue in the month of December so prior year figures would not provide meaningful comparisons.

The question is how likely is it for December 2002` to be net cash positive to the tune of Lm33 million in order to hit the projected budget target and avoid political red faces as the budget figures result` embarrassingly elusive right in the run-up to the referendum/election`

December figures are normally published in April or May so we still have quite some way to go before we get formal answers to the questions the answers for which could and should be available by end January or early February at the latest. Left to its own accord the chances of hitting Lm33 million cash positive in December 2002 were indeed slim. They appeared slimmer considering that capital expenditure payments were evidently being held back so much so that only 85% of the projected budget had been funded by November 2002. An unfunded budget expenditure of two months capital expenditure had to be fitted in the last month.

It is in the light of this position that one can understand the hysterical last minute changes made to published rules governing Investment Registration Scheme. Changes which are an integral part of the Scheme that could even be challenged as to why they were not announced before giving people the opportunity to register at the lower rates applicable earlier i.e. 3% up to March 2002 and 4% up to June 2002. `The result is a hotchpotch confusion which forced the Institute of Taxation to officially label the proposed legislative changes as `dangerous and unorthodox

It must have been quite a measure of panic that constrained the Ministry of Finance to decree so late in the day that foreign interest bearing securities registered through a local nominee could enjoy the 15% final withholding tax facility but only if registered in the Investment Registration Scheme, failing which it was proposed to exonerate the local nominee from the professional secrecy obligations.

An Investment Registration which was meant to stay operational for over 12 months had its rules radically changed in the last couple of weeks, in the peak of the festive season,` forcing investors to decide in confusion after waiting in stockbrokers` queue lines which needed police crowd control.` Some way to pass the Christmas holidays!

But the November public finance figures give us some explanation.` Panic must have stricken at the Ministry in December 2002 when hit by the reality of the November situation. Panic that was forced upon normal citizens in an attempt to force extra revenue which must have ruined quite a few peaceful Christmases , in a desperate attempt to save political blushes.

The result is a hotchpotch confusion which forced the Institute of Taxation to officially label the proposed legislative changes as `dangerous and unorthodox`.

Whether these measures succeeded to generate the additional one-off revenues to bring the final deficit at least respectably close to the projected Lm77 million is something we have to await a few more weeks before we know it.

Alfred Mifsud