Sunday, 17 November 2013

Citizenship, Budget and EU oversight

This article was published in The Malta Independent on Sunday - 17.11.2013

I have nothing in principle against the citizenship scheme. I have reservations about some of the details, which I hope the government will fine-tune in an effort to gain better acceptance by the population at large, if not by the Opposition.
I have nothing against it in principle because, as a member of the EU, Malta has already agreed to share whatever a citizen can do, except vote in a general election, with hundreds of millions of other EU nationals and this without the ability to screen and refuse the given rights. We have already agreed to give citizenship to any foreigner that marries a Maltese national after a certain period of residency (the residency condition only applicable since 2000), and this again without any real screening and without any precautions to ensure that such new citizens can actually support themselves. We have given such citizenships in their thousands and many have failed to fulfil their social obligations without in any way putting their citizenship at risk.
So I can have no objection in principle to our granting a few score of such citizenships for economic reasons – after proper due diligence regarding screening – to people who can contribute at least one million dollars to our exchequer. It is normal to use whatever one possesses to deliver income streams that support economic activity and standards of living, and those that have resources, exploit them. Those that have technology cash on it by adapting it to deliver convenient products that meet or stimulate consumer demand. Our assets are our country, our culture, our people and the quality of life we can offer to those seeking security and peace of mind. I see nothing wrong in leveraging our assets to generate wealth that can then be further leveraged for economic development without incurring borrowing or levying taxes.
Those who object to such a citizenship scheme as a matter of principle must be respected, but consistency demands that they would also be (indeed, more so, given the larger numbers involved) against in principle all forms of granting citizenship to non-Maltese. Otherwise their objections on principle would appear insincere.
As to the details, I have reservations. Firstly I have problems with its name. The title ‘Individual Investor Programme’ (IIP) does not faithfully represent its contents. Paying taxes does not make one an investor. The ‘Economic Citizenship Programme’ would have been a more apt title. Secondly, the non-disclosure of the names of successful applicants seems unnecessarily suspicious. If we are welcoming new members into the family, we should know who they are. And lastly, given the extraordinary nature of these revenues and the risk of our being perceived as desperately trying to raise funds for ordinary budgetary expenditure, I would have preferred them to be allocated, in their entirety, to a local version of a Sovereign Wealth Fund to leave an endowment legacy to future generations.
Even if these reservations are addressed, the government still has to work to persuade one and all about the rigour of the due diligence process to safeguard the Malta brand and filter out unsavoury characters from accessing such programme. The unnecessary secrecy is mitigating government’s effort to re-assure about the integrity of the screening process.
As to the Budget, there is little to criticise about it. Reducing taxes on the economically active, offering social payment increases to the non-economically active (including students and pensioners), cutting down utility rates leading to substantial purchasing power enhancements to households’ budgets, increasing investments in infrastructure, stimulating through incentives the changeover from dependency to active economic participation, offering incentives for more female participation in the labour market, addressing young age dropouts from the education system and making substantial increases to education and health budgets – and all this wrapped up in a plan to reduce budget deficit further to just 2.1 per cent of GDP for 2014 – is the stuff fairy tales are normally made of.
The EU Commission clearly cannot understand how this can happen. It doesn’t understand how income tax revenue can actually increase by more than the projected nominal economic growth rate whilst concurrently awarding tax rate cuts. Judging by how often the previous government used to miss their budgetary targets, one could hardly blame the Commission for expressing doubts and asking for more details on the budget contents.
The new Labour government in general, and Minister Edward Scicluna in particular, are staking their credibility credentials on the proper execution of the budget plan to deliver as promised. Their first test will come when the actual deficit for 2013, projected at 2.7 per cent of GDP, is crystallised next spring. Further progress in budgetary discipline while executing the projected measures will largely depend on four factors:
  • Harsher tax enforcement to address tax evasion and collect back taxes.
  • The continued growth of international activities, including international gaming, processed through foreign companies based here, generating additional tax revenues.
  • Achieving growth somewhat better than the real 1.7 per cent projected for next year.
  • Strict expenditure control as projected in certain budget votes which are destined to experience real cuts in their allocation.
None of this is impossible. If concessions for tax compliance are coupled with strict measures to punish persistent defaulters, the government should achieve a substantial increase in its regular income receipts. International activities still seem moving on with the wind in their sails. And economic growth projections of 1.7 per cent seem pretty unchallenging, considering the release of consumer demand and business investment which had been suppressed by election uncertainty, and the additional demand that will be generated by the budget measures themselves. In particular, I mention the attractive offer for first time-home buyers to take the plunge in 2014 and save the duty on the document charge of 3.5 per cent. Expenditure control depends on cabinet support and teamwork: the Finance Ministry cannot do it on its own.
The Budget for 2014 is like no other before it. Rather than rolling back in the initial years of the legislature to release the feel-good factor in the later years, this Budget raises the bar straightaway. It can only be considered politically savvy if the government feels confident that it can execute and deliver consistent economic growth much closer to the economy’s potential in order to maintain the momentum uninterruptedly until the next time it has to seek a refresher of its mandate. Suggestions that the EP elections in 2014 have anything to do with the budget strategy would appear far-fetched, as incumbent governments generally accept that they have to drop something on the way between general elections.
As the saying goes, the proof of the pudding is in the eating, as much as the proof of the budget is in the execution.

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