Politicians dedicate considerable time discussing how they intend to spend taxpayers’ money. They rarely speak about how they will fund public expenditure, often claiming that economic growth will magically finance this expenditure.
It is time for some hard talk on a fairer system of taxation.
A report by the European Green Party suggests that Malta could add €43 million to the public budget by implementing a moderate progressive wealth tax on the wealthiest 0.5 per cent of its population.
A further €301 million could go into the public purse by curbing tax abuse from wealthy individuals who hide their money in secrecy jurisdictions.
Governments do not like increasing taxes until their backs are against the wall and financial markets and institutions use the stick to ensure that public spending does not go out of control.
Politicians often prefer to cut benefits rather than raise taxes.
Most people understandably call for super-rich people to pay their fair share.
A new wealth tax – an annual tax on the net worth a person holds – could redistribute wealth, galvanise public support and generate substantial revenue for the government. Wealth taxes are popular with the majority of people because they can raise revenues while tackling inequality.
In the UK, it is calculated that the top one per cent have more than the bottom 69 per cent of the population.
There are, of course, some arguments about the possible adverse effects of introducing a wealth tax. Some argue that a wealth tax would entice rich people to leave the country to become tax exiles.
In our hyper-globalised world, money does not talk, it walks. As the saying should go, two things are certain in life: death and tax avoidance by the super-rich.
Tax avoidance is not inevitable.
It is a policy choice often tolerated by politicians with a laissez-faire mindset.
Some countries, like the US, have a strong political commitment to fight tax avoidance and evasion. Malta should follow the example of these countries if it aims to invest more in our free health and education system, the physical infrastructure and the social network that prevents families from being caught in the poverty trap.
There are countries, like the UK, that have considered implementing a wealth tax system only to discard the idea when a small but strong lobby of rich people protested loudly.
Aristocrats claimed that, although they were asset-rich, they were, in fact, cash-poor and they did not have the liquidity to pay wealth taxes. Still, there are many ways in which the super-rich liquidity objections can be addressed.
The minister of finance has done well to put the pre-election commitments to spend billions on fancy projects like the Gozo tunnel and the metro system on the back burner.
He will do even better to start discussing the taboo subject of how to raise revenue by taxing the tiny minority of the super-rich to meet the reasonable demands of the overwhelming majority of the population.
Wealth taxes are complex and how they are calculated can vary from country to country. Still, many would agree that those with the broadest shoulders should bear the heaviest burden.
Like a good tailor, the minister of finance must measure the size of one’s shoulder in precise mathematical terms to determine how the tax burden should be distributed fairly to balance the country’s books.