A €1 billion pile of money owed to the government is just waiting to be collected, a National Audit Office report has revealed.

The sum is the equivalent of 6.5 per cent of national GDP, or 12 per cent of Malta’s national debt.

It represents the arrears owed to the government by the end of 2021 which the NAO believes are collectable. The vast majority is owed by private individuals or companies, with just €86 million owed by one government department to another.

In reality, the €1 billion figure is just a fraction of the total owed to the government, which amounted to almost €6.4 billion by the end of 2021.

The NAO criticised what it said was "insufficient effort" to collect amounts owed to the government.

A huge majority of that money owed – around 85 per cent of it – is classified as ‘uncollectable’ due to a variety of reasons, ranging from claims being statute-barred to ongoing disputes.

For instance, of the €925 million that the government says it is owed in income tax, it can only hope to collect a maximum of €166 million, with the rest classified as not collectable.  

Despite there being no real prospect of ever recovering that money, the government continues to mark it on its accounts as being owed, rather than writing the money off. Finance Minister Clyde Caruana had even alluded to uncollected taxes of €5 billion in a parliamentary speech earlier this year.

It appears the NAO is not too pleased about this state of affairs, which Times of Malta understands has persisted for decades, across various administrations.

“Whilst prudence is important in the reporting of these figures,” it wrote in its 2021 report, “it is also imperative that a true and fair picture is given of the amounts owed to government.”

Details about arrears owed to the government feature in the NAO’s Annual Audit Report of 2021 public accounts, tabled in parliament on Monday afternoon. The report combs through the 2021 financial statements of each ministry, taking a close look at how money was spent and received across the public sector that year.

The €6.4 billion total arrears figure calculated by the NAO would most likely be even higher if all ministries and departments complied with their obligations and submitted their returns. In the event, the Economy Ministry, Inclusion Ministry and Transport Malta all failed to do so.

Which departments are owed the most money?

The report dedicates a separate chapter to listing the money that the government is owed. Practically all ministries and departments had some measure of arrears by the end of 2021, though amounts varied wildly.

Unsurprisingly, the taxman is the biggest state creditor. The Inland Revenue Department is owed €1.6 billion, although, two-thirds of that amount, or €1.2 billion, is classified as uncollectable.

Figures are even more eye-popping at the VAT Department, which has €4.5 billion of uncollected arrears on its books, with a massive 92 per cent of that figure, or €4.2 billion, reported as not collectable.  

The NAO report looked closely at the finances of each ministry and public department. Photo: Mark Zammit Cordina

The Lands Authority is owed €56 million by tenants of government property, with over €14 million of that having been uncollected for more than five years.

The Health Ministry is owed €36 million. More than half of that - €21 million – is owed by other state entities for the provision of medical supplies. But around €9.5 million is owed to Mater Dei Hospital in overdue fees, for instance.

A further €29 million is owed to the Department of Social Security through overpayments to the beneficiaries. The NAO believes just over €4.5 million of that total is uncollectable, having been owed for more than 10 years.

Criminals fined by a court of law had a particularly good year, with the criminal courts actually collecting less money in 2021 than in the previous year. By the end of 2021, the criminal courts were owed more than €8.7 million in outstanding fines. In total, the law courts were owed €12.2 million, with around one-third of that deemed statute-barred and therefore uncollectable.

Is the situation getting better or worse?

The NAO said it was encouraged to see that the government collected €105 million more in arrears in 2021 when compared to the previous year. It also noted that collected arrears as a percentage of national GDP appears to be on an upward trend over the past five years.

Furthermore, the amount owed to the government increased by just €87 million between 2020 and 2021, compared to the massive €1.2 billion increase registered between 2019 and 2020.

But there are also signs that authorities are struggling to keep up with debtors.

Total arrears are on the rise, ballooning from €3.4 billion in 2017 to €5.1 billion in 2019 and €6.4 billion last year. 

Gross outstanding arrears are growing at a rate much faster than national GDP, for instance. In 2017, they represented 30 per cent of GDP, compared to the 43.5 per cent registered in 2021.

And while the government has sent very public and pointed signals to tax cheats that it will be pursuing them, its overall debt collection efforts are not making any real dent in the overall pot of money that can be collected by the state.

While the government collected €372 million in arrears last year (up from €209 million in 2017), the amount collected every year expressed as a percentage of all the money that it could collect actually declined, from 40 per cent in 2017 to 38 per cent last year.