Council tax - a sickness not a cure

It is difficult to comprehend how anyone would wish to have an additional tax burden to be imposed upon oneself. After his long article, "Council tax is fairer than higher VAT or income tax" (January 12), Albert Cilia Vincenti will need to be convinced that introducing a council tax in Malta is not a very good idea. He is clearly a proponent of a tax which has been the subject of much discontent in the UK and a variation of it, the disastrous poll tax, brought riots onto the streets of London and elsewhere in the UK. Indeed, the Liberal Democrats are even at this moment proposing reforms to the present council tax system. It is a mystery why anyone should suggest a discredited revenue raising system should be applied to Malta.

The heading of the article itself has a message of unproven worth and of such subjective quality that automatically calls for a denial of its dogmatic assertion and a counter argument based more on a scientific appraisal in line with a more technical approach. Because a council tax is a property based tax, it is a regressive tax not only in its dictionary sense but also in its esoteric meaning that it bears no relationship with one's ability to pay it, a vital technical distinction which the student of finance and economics would instantly identify with.

For any government to launch this new source of revenue raising tax, it must first weigh the political implications of that tax and then proceed to apply the first principle of taxation: Is it cost efficient? Is the revenue collected worth the cost of its collection?

Any new tax cannot be absorbed within the existing resources of the department charged with its collection (ask the Revenue Department). It will need an army of extra staff to administer it; the expenses needed to enforce it as well as the time and resources used, not to mention the variable costs involved, have to be taken into account. This government learned from its experience of trying to collect inheritance tax which made its collection uneconomical and to the relief of the country and of numerous widows decided to abandon any attempts at collecting revenue from this source.

A council tax makes no distinction between those able to pay it and those who cannot. The Labour Party with their infamous door tax of Lm40 per household, which formed part of its manifesto during the last election, would have introduced by another name what would have amounted to a property based tax no different than a council tax.

Mr Cilia Vincenti would be naïve to think the amount demanded would have remained fixed at Lm40. That type of tax has a tendency to rise and rise. In the UK, the appropriate social and welfare machinery was incorporated to assist financially all those that could not afford to pay council tax, it is the present system now. In Malta, the central government might be forced to adopt the same policy, thus increasing the cost of collection.

If Maltese governments introduce a property based tax for their own coffers, it will be mere hopeful expectation on Mr Cilia Vincenti's part to expect any government to reduce VAT or lower income tax to offset the additional tax burden of the ordinary citizen. He has lived in the UK and ought to know that these type of taxes do not decrease but increase over the years. The present average council tax payment per household per annum is £750 in the London area. The periodic "rateable" value carried out by the district valuer, an officer independent of the government and of the local authorities, is overdue which will mean a further increase rather than a down-rating of property values. Malta in its slapdash ways will probably employ an arbitrary rule of thumb valuation to be made by architects, of all people.

This government must have considered the advantages and disadvantages of this novel form of taxation in these shores. Wisely, it has declined to foist upon the public a measure of what would certainly be an automatic vote loser. Why it should choose to use a discredited revenue raising system is certainly a factor to influence its options.

One does not need to own a property to be liable for payment of a council tax for the liability for payment falls upon the occupier of that property. Contrary to what Mr Cilia Vincenti states, this tax provides no choice for avoiding it. In economic terms, its imposition amounts to an inelastic demand. With VAT and to some extent with income tax, one has a choice. The former does not force anyone to purchase the Vatable commodity or service. With the latter, there is an option not to exceed one's personal income that would put one above the relevant tax threshold and incur additional tax so that one has the choice to keep to the optimum amount earned. It is, of course, not always possible to avoid additional taxation especially to PAYE staff but additional overtime may be optional and the same choice can be extended to the self employed.

Mr Cilia Vincenti justifies the imposition of a council tax on the hoary assumption that property owners are necessarily rich. Not all occupiers of properties are the owners of that property and those that are owners, may not be rich at all. Theirs may, because of its size, be burdened with a depreciating asset. It is only an appreciating asset if its owner cashes in on its enhanced market value but that still would leave that person with the problem of having a roof over his head. If the property owned is not the sole residence he or she will need to pay tax on its sale. It is not so much the value of one's assets that count but the income derived from it or otherwise the level of income one has coming in. If there is not enough money coming in to cope with the additional burden of paying a council tax, it is a factor that should concern any government proposing to introduce this tax.

I will not comment on Mr Cilia Vincenti's political sentiments. He would however do well to understand that the imposition of a tax, any tax, has manifold dimensions and that over-simplistic solutions are not the answer to a very complex problem. He should appreciate that empowering local councils themselves to raise revenues for their own functions or other projects of theirs is a non-starter.

Local councils here would love to be endowed with those powers. It would enable them to build huge empires as the local authorities in the UK. A council tax in Malta would be a great mistake for then we would have the worst of both worlds - a central government with revenue raising powers through VAT and other forms of charges and taxes, and local councils collecting from beleaguered taxpayers, a financial assault from two fronts rather than from one. How nice! Only the degenerate rich and those of a masochistic mania would want that state of affairs.

The present government has achieved the right balance. It has kept local council spending in check without any diminution of services provided. By doling out its funds in a measured way and by denying extra revenue-raising powers, it has avoided the nightmarish prospect of having another form of authority in making free with our monies. The present system is working quite well. Changing it will only invite trouble.