Sunday, 12 January 2014

Restoring political democracy

This article was published in The Malta Independent on Sunday - 12th January 2014

10 months ago a new government was sworn in following a clear-cut election result.

Labour was mandated to govern for a five year legislature with majorities that leave absolutely no doubt about what the electorate wanted.   The PN were given a trashing and a lesson about the truism that under the sun nothing lasts for ever.

Nobody expected a new Labour government to start functioning effectively immediately.  They had to take over an executive corpse where all decision making positions were filled over a quarter century by successive PN governments that gave priority to party loyalty rule over meritocracy.

Nobody expected that the PN will gracefully slip into Opposition and focus on internal regeneration.
Old habits tend to die hard and adjustment to the new reality had to take some time.

But 10 months down the road I find it strange that the PL government often still acts as if it is in opposition and the PN opposition acts as it were still in government.

Nothing bears truth to this better than the way government and opposition have behaved regarding the Individual Investor Programme (IIP) – Citizenship Scheme.

Small countries like us must innovate in order to prosper.   We do not have the economies of scale to beat larger competitors by playing their game.  We must play a different game.   We must differentiate ourselves and move fast in doing so before others catch up.   Particularly in sectors where we have no intrinsic natural advantages (as we have in tourism and to some extent in manufacturing) we had to devise new innovative ways to compete.

In financial services, gaming and back office services we have used our intrinsic advantages of having a well-educated, English speaking, competitively priced work-force and network of  professional services, and coupled them with fiscal advantages which competitors with large legacy fiscal base find it impossible to imitate.    Our best kept open secret is that our full imputation corporate tax system effectively means that on profit distribution the shareholder is given full credit for the corporate tax paid on the distributed profits.  This essentially renders our effective corporate tax as zero permitting flexibility in taxing dividend recipients in a way that renders us tax competitive for corporates booking their international profits through Malta without attracting the international bashing recently served upon Ireland, Luxembourg and Netherlands that are constrained to devise ad hoc tax structures for what we can do unobtrusively through mainstream tax systems.

The PN government had the full explicit and implicit co-operation of the Labour opposition in building and adapting these financial and tax structures right from the beginning of the offshore regime in 1988 to all developments and adaptation up to the current regime.  All legislative measures were passed with consensus and debates often where held in camera where differences were trashed out away from the spotlight.

The IIP is a further innovation to extend our international services offering.   Many EU countries already offer golden visas permitting free movement within the EU with minimal residency requirements without the need to pay anything upfront except making moderate investment in real estate.   Launching a similar scheme would have presented no competitive edge and no upfront fee which we can use to build  a sovereign wealth fund  (SWF) with which to finance infrastructure investments ideally on a PPP basis.

Offering citizenship gives us the innovation edge but opens up certain risks which had to be addressed.   The first risk was filtering out unsavoury characters.   To ensure that we do not tarnish our reputation as an honourable financial centre it was necessary to set up robust due diligence tests and to reserve the final judgement on each application.  There was the risk of perception by our EU and visa waiver partners of our adopting beggar thy neighbour policies to cash in on privileges, offering them wholesale to non-residents.  This needed the establishment of fixed quotas.   There was the risk of our being perceived as desperate for new revenue sources to close up some dangerous fiscal hole.  This needed assurance that with or without the IIP our fiscal accounts were in good shape and that most of the funds would be allocated separately to SWF type of investments rather than taking it into the mainstream budget to finance operational expenditure.

In all these matters the Labour government operated as if it were still in opposition, effective in generating ideas but with no experience of execution.    It took various tweaks, showing an unsteady hand at the wheel, to bring the scheme to a form which addresses the risks and gains support from interested private sector players.   Labour should learn from this event that the best ideas could be ruined through lackadaisical execution.

The PN opposition on the other hand behaved in denial of the message that the electorate gave them last March.   They could have disagreed with the Scheme on a matter of principle, voted against it and refused to enter negotiations.   That’s how democracies work.   But entering into negotiations and seeking consensus on the basis of my way or the highway is not fit for purpose.  Threatening to revoke what predecessor governments would have legally contracted portrays us as a banana republic especially if the opposition gloats about it on foreign media.

The Opposition has a duty to oppose but pretending it has the right  to impose the minority view on the majority is no way to run a democracy.  Arguments that public opinion was generally against the Scheme hardly works in a democracy.  No serious government can govern on the basis of public opinion.   No serious government can execute by opinion polls.   Governments govern over a legislature, execute in terms of law, and after that if generally they do more right than wrong they get re-elected and if not they get replaced.

As we start a new year and the first full year of this legislature it is time for our political democracy to revert to normal operations.   The government has a mandate to govern.   It should consult before deciding, it should seek as broad an approval as possible, but once it decides it has to move on.

The PN has to accept that it is no longer in government.  If they cannot find the inner strength to sustain the consensus they enjoyed from Labour opposition (even in areas where Labour had reservations) in so far as financial services and such matters, they should register their disagreement but allow to government to move on with their mandate, warts and all.   The more warts the more probable they can convince the electorate to change their mandate when elections are due again.

It is time for both sides to respect the electorate’s mandate.  The government has to govern, the opposition has a right to oppose but the duty to let the government govern even where they disagree.

And it is super-rich from the Opposition to pretend to influence their way the choice of the next President.   They appointed their own ever since the late Pawlu Xuereb was removed from Acting President and in the process appointed three ex-Ministers and one ex-Prime Minister from their own stables.  Only when they won the 2008 election  by a hair’s breadth margin they made the only token concession to Labour by appointing to the Presidency Dr George Abela who as time has proven had all the merits for the position irrespective of his political affiliation.

This is not to say that Labour should compulsory appoint one of their own.   The chosen candidate should be appointed on the basis of merit and ability to unite the nation.   The political class should not be considered as having the exclusive patrimony of such merits.  

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