This draconian eco-tax

The GRTU is putting forward several arguments against the way the new eco-taxes are about to be implemented. The Eco-Contribution Act is an insult to most traders. The constituted bodies representing trade and industry at MCESD as well as the main trade unions and all NGOs representing the environment all agree that this Act should be shelved and serious discussions held within the framework of the proposed consultations on a social and economic pact for Malta and as part of the consultations on the 2005 Budget.

Government has simply messed up this issue and the sooner they admit and move forward to present something on which we are all in agreement the better. They have an important point and they should be content with it: we are all convinced of the need of action on the national waste problem and we are all determined to find the right solution.

The worst thing they can do now is to unleash the PN snipers who miss no opportunity to attack the persons, myself in particular, who have argued most strongly against the nonsense in this Act. It happened before and we are ready for it.

When these political nitwits have no arguments, who they go about hitting the persons with accusations of hidden agendas and political innuendoes. Hopefully this time round the people who really matter have learned that there is one sure way of achieving success in public administration, and that is through consultation, serious consultations and not jokes as happened with the eco-tax.

The GRTU's main arguments are not difficult to understand. Answers can be found and we can move forward to resolve other more important issues that are afflicting our country. First of all, this is not the appropriate time to introduce an additional layer of taxation on society.

The government is effectively proposing to increase his revenue so that it can pump more money into inefficient departments and other authorities. Big government results in institutional sclerosis, a situation where government departments fail to function efficiently and effectively, leading to confusion in the same institutional set-up.

Ultimately, society bears the cost of this improper use of economic resources, including time and manpower. This is the present situation, exemplified most clearly in the eco-tax saga.

It is imperative that government ministers understand the economic situation we are in. An unusually higher RPI (an indicator of inflation), mainly due to VAT increases, coupled with a stagnated economy (negative real GDP growth in 2003) is usually referred to as stagflation.

It seems that inflation is of a cost-push nature, mostly government induced, which hits the supply-side of the economy directly. Stagflation simply means that the economy is becoming uncompetitive.

Increasing the tax burden will suffocate the private sector that strives for efficiency and ultimately generates value to consumers. Further taxation acts as a disincentive to work or to employ, possibly resulting in less tax revenue.

If unemployment increases as a result, government revenue from income tax, Social Security contributions and VAT will inevitably decrease. Higher unemployment triggers more unemployment benefits and possibly underground activities. A search for new tax measures accelerates this negative vicious cycle.

Employees are put on the alert as a result of this eco-tax. It is a draconian move but importers are left with no other choice. If an importer has a restricted credit limit, he will find it difficult to continue importing the same quantities simply because eco-taxes on those imported items will fall due in less than three months' time. It is very unlikely that importers will sell their whole stock within this time period. Eco-taxes are also due on stocks still unsold. Therefore, should importers limit their trading business, and then employees will become unnecessary.

As the Trade Fair survey has shown, people are more conscious than ever of their spending patterns. Thus, it is not so easy for many importers to pass higher prices onto consumers. The recent VAT increases have been internalised by many businesses to limit price movements that render them uncompetitive.

The GRTU is insisting that government decision-makers take on board several of its suggestions. It is proposing, among other things, that the Act's coming into force is postponed until all the necessary discussions and arrangements take place. Moreover, the tax should become due at the point of sale.

It is totally unacceptable that the eco-tax has been imposed on the opening stocks. This creates havoc because businesses cannot cancel decisions taken before the tax was proposed. It penalises those who ordered and shipped goods without due notice, and those who didn't manage to sell their stocks.

The GRTU's main arguments are economic. But we also believe that the Eco-Contribution Act is socially unjust, especially on young couples furnishing their first home, on the elderly with fixed and diminishing incomes, and on the workers employed by the effected traders and producers.

The Act is also unjust as it gives a bad name to eco-taxes and turns people against solutions to meet our environmental challenge as they perceive all government initiatives as merely additional tax burdens.

This Act should be scrapped and reproduced only following agreement with all stakeholders.

Mr Farrugia is director-general of the GRTU - Malta Chamber of Small and Medium Enterprises.