Moral hazard is a common occurrence in economics.
Tax amnesties and ad hoc agreements signed by tax authorities that agree to forgo part of the tax arrears owed by habitual late payers are among the most common examples of moral hazard that have surfaced in the last three decades.
It seems that the government has little sensitivity to the consequences of encouraging it.
Moral hazard describes situations in which the costs of risky behaviour are not entirely borne by those responsible for that behaviour, so encouraging excessive risk-taking in the future.
It is no wonder that honest citizens who pay their taxes as and when due feel they have been taken for a ride when the strong and mighty of the business world manage to pay less than they owe and also pay late.
Times of Malta last week gave details of a deal struck between the tax authorities and Charles Polidano, a property tycoon, who has amassed unpaid tax bills of €40 million over the last 25 years. The deal reportedly involved some quid pro quo arrangements that ultimately resulted in Polidano reducing his tax dues.
The Minister of Finance, Clyde Caruana, denies that any tax due has been forgone.
Not surprisingly, he said: “The government will ensure that tax dues are collected and tax evasion curbed. This principle of fiscal morality has not and will not change no matter who the individual or company is.”
Of course, this current administration cannot be held solely responsible for this moral morass, where powerful business entities are allowed to postpone paying their tax dues for decades.
Powerful businesses can twist the arms of any administration by threatening to sack their employees if they are pressed too hard by tax collectors.
They can also remind politicians of favours they might have granted to them by employing their selected constituents or making donations to their political party.
We are not in a position to say if this is the case with regard to Polidano.
Minister Caruana’s interpretation of the agreement reached with Polidano lacks credibility.
It would have been more convincing had he insisted that any overdue tax settlement agreements signed with delinquent taxpayers must include a clause in which the beneficiary agrees to waive his privacy rights by agreeing to publish the details of the deed.
Saving a business from bankruptcy is sometimes justified because using taxpayers’ money may be less damaging than letting a viable company go under when it is facing temporary cash flow problems.
But taxpayers’ money should never be used to compensate for the incompetence or lack of political will to collect all tax dues on time.
Nearly three decades of a dereliction of duty by tax collectors, probably with the consent of their political masters, is a betrayal of honest citizens’ trust in their political leaders and civil servants.
The government will continue to pretend to occupy the moral high ground by insisting that it is doing all it can to improve public governance.
Yet, it ignores the reports of its own National Audit Office by not taking action against public officials and its ministers whom the auditors censure.
When ordinary people see business tycoons get away with dishonesty, they are tempted to take risks by ignoring civic rules.
Ad hoc tax agreements that are not transparent can only undermine the faith of law-abiding citizens in ethical behaviour, one of the pillars of a fair and just society.