The 2022 general election campaign has thus far shown us that both of the main parties are proposing low taxes. This clearly is good news for workers and businesses, especially as the economic recovery starts to take hold post-pandemic. For the record, I am a big advocate of the low tax model to spur economic growth, liberalism and individual advancement.
My concern, however, is that both main parties are also positioning themselves to be big-spending governments and this is conceptually flawed since the two − low tax and Big Government − can never coexist.
A low tax economic model is primarily based on a strong private sector leading economic growth but it is also based on the premise of Small Government. By this, I mean the economic and political system is one of minimal government involvement and free market economics. For many economists, this is elementary and we have built our (modern) economic system on such a model, but to our mainstream politicians, I sometimes get the impression it is not. Hence my reference to political alchemy.
A policy of low taxes encourages enterprise which leads to economic growth, the creation of new employment opportunities plus new industries and, ultimately, social progress. It also removes the dreaded ‘dependency culture’ which we seem to be nurturing in recent times (especially during the COVID-19 crisis).
Unfortunately, the pandemic created the necessity for Big Government to step in, at a time of great uncertainty, but now it must scale back and normalise. Failure to do so is a flirtation with political alchemy: low tax but Big Government.
To my mind, this is dangerous and will eventually lead to a ballooning public debt which will become unsustainable and will eventually necessitate higher taxes, which punishes the hard-working and enterprising.
In fact, I sometimes get the dreaded feeling that the pandemic (clearly an extraordinary event requiring, at the time, an extraordinary response) incubated a socialist type of command economy over which there is political consensus by the LP-PN hegemony. I mean the government is again at the centre of all decisions which shape and form the economy.
Actually, I would go a step further and say that the government is becoming an important economic player per se and this is undermining the free market we built over the last 50 years.
This is worrying, since Big Government always ends up stifling private business, taxing everyone and ultimately impair ‘creative destruction’ (the ‘X’ factor of economic liberalism), which then promotes a ‘dependency culture’ and suffocates enterprise and innovation.
I fully support all manifesto proposals advocating a low tax economic model but I strongly feel that such promises should come with the proviso that government spending will be optimised and trimmed over the medium term
The bad news is that globalisation and free trade has also taken a big hit with Russia’s invasion of Ukraine, and the subsequent economic sanctions imposed by the Free World on Putin’s Russia does not augur well. We seem to be going back to Cold War Part II and global free trade is about to reboot back to the 1970s.
Malta always benefits from a free and open economy which is invested in economic and political liberalism. We stand to destroy our current economic model if we go down the road of low taxes and Big Government spending; if we clap when we see Big Government constantly intervening in the economy; or if we cheer when we receive more government cheques.
The government’s role is to provide strong robust finances; to provide a transparent and fair legal framework which encourages free enterprise and allows the private sector to be the protagonist of the economy with minimal regulation and interference; and promotes individual freedom and liberty.
So I fully support all manifesto proposals advocating a low tax economic model but I strongly feel that such promises should come with the proviso that government spending will be optimised and trimmed over the medium term, to the extent that our debt-to-GDP ratio goes down again to <50 per cent of GDP.
Wealth creation, entrepreneurial spirit, innovation, small government, and sound finances, ensure a healthy economic system which benefits workers, owners of capital and entrepreneurs, but also the weak and vulnerable since the state will, in such a scenario, always have sufficient tax revenue to care and protect those groups most in need.
However, to continue with Big Government spending programmes, a culture of government interventionism and overly complicated government laws and regulation, which is where we are post-pandemic and post-greylisting, is a recipe for economic decline and a lot of future taxes.
It is as if the pandemic and now Russia’s invasion of Ukraine have created the toxic climate to reformulate our economy in favour of an economic model we know doesn’t work. An economic model based on political alchemy. Low taxes yes. Big Government no.