The economic cost of illegality

The Italian state audit institution, in a report published last week, noted that the cost of corruptive practices in the public sector could be estimated at around €50 to €60 billion. The same report also stated that its estimate of the level of tax evasion is at around a €100 billion.

Put the two together and you would reach the staggering figure of around €3,000 per capita. When estimating such figures, there is always the trap of either overstating the impact or understating the impact, and so one never really knows the full extent of the problem.

With this qualification in mind, there is still no doubt that the direct economic impact of corruption and tax evasion in Italy is very significant. And this excludes other forms of illegality, big and small, such as the payment of protection money to criminals, and the indirect impact on the economy resulting from a misallocation of resources and other factors.

So the full cost of illegality in Italy is probably higher than the €3,000 per capita I referred to. What about Malta? We Maltese would claim that we are different to Italy as we are generally law abiding citizens, with a few exceptions.

I will accept (even though not agree with) this qualification as well and for practicality's sake let us assume that the total cost of illegality in this country is at around €1,500 per capita. That means a total of something like €60 million in total. Experts in economic modelling could tell us the impact of this figure in terms of gross domestic product, fiscal deficit, employment, and so on. The question that needs to be addressed is what constitutes this illegality.

It is all too easy to pinpoint corruptive practices in the public sector; however, corruptive practices are just as common in the private sector. Decision makers in both the private sector and the public sector are tempted by backhanders or favours of other types in an equal manner.

It is also very easy to pinpoint tax evasion by certain, not so socially respected, categories of people, but tax evasion by categories of people whom society treats with more respect is just as rampant.

Then there are those who claim social benefits to which they are not really entitled to or who seek to make use of public services for free, when they do not really need to. All these cause a burden on public finances and private sector based economic activities.

There are other forms of illegality that weigh on our economy that may very often go unnoticed. I shall list some, but the list should not be considered as exhaustive.

Exorbitant charging arising from monopolistic situations in the market;

People leaving their place of work, during working hours;

People absenting themselves from work using false pretences such as abusing of sick leave;

Littering;

Occupying public property without any right;

Not respecting health and safety regulations at work;

Wasting and squandering of resources, both public and private;

Stealing from one's place of work.

Once one includes all these, then it starts to become evident that the total economic cost of illegality in Malta is most likely to be above the €60 million I referred to earlier on.

All this money is being taken away from persons who obey the law all the time, who all he taxes due by them and who seek access to public services when they really need to.

The conclusion is to me fairly obvious - would this country be richer, both economically and socially, if we managed to eradicate this illegality?