Tax defaulters who do not have a payment plan with the tax authorities should be automatically excluded from public procurement, according to the Finance Minister.
In a wide-ranging interview with Times of Malta, Clyde Caruana believes there was no need to come down heavily on tax dodgers because people were coming forward to regularise their positions.
The minister says he is confident Malta has made enough progress to satisfy the FATF leading to the country’s removal from the grey list. He, however, admits there is no backup plan if the government’s plans go haywire.
On the Air Malta issue, Caruana admits it was used as a “political tool” for far too long and the time was ripe to start taking decisions that made commercial sense.
He refused to be drawn into pointing fingers at those responsible for the “prolonged bad management” that persisted over the years but was confident that the latest plans would ensure that the airline continues to fly.
While pointing out that the €1.6 billion deficit does not worry him much, he says the country can live without the much-criticised golden passports programme. The technocrat, who was co-opted to parliament, says he is not electioneering and is trusting people’s appreciation of his work to retain his seat.
MX: You recently unveiled a plan to reduce Air Malta workers by half. How confident are you that this is going to save the airline?
CC: The airline has gone through a number of changes. The first one, and perhaps the most important, was the reorganisation of the network. The airline was losing millions of euros on the network and that has been addressed. Now we have to look at other things, among which the workforce, where the airline can save another couple of millions. I, together with the chairman and the board, are doing our utmost to make sure the airline survives.
MX: How many people applied so far for the employee- transfer scheme?
CC: The numbers were in the region of about 150. But I’m expecting the numbers to increase significantly after we close negotiations with all the unions.
MX: Were workers offered a guaranteed job for life until they reach pensionable age?
CC: Well, yes, that was one of the offers, which is similar to what has been offered in the past. This is not something the workers brought upon themselves so it’s only fair they do not have to pay for the consequences. The workers will be offered alternative employment in the public sector, however, they can be shifted to the private sector. It’s still on the cards if there are vacancies.
MX: If you had to look at Air Malta as a patient, can you diagnose the main reason for its state today?
CC: I would say there were many reasons. Network, overstaffing, bad commercial decisions that were taken over the years, so the problems are quite multifaceted. But perhaps one of the major issues was that the airline was not run on a commercial basis, but other goals were at the forefront of commerciality.
MX: Was it used as a political tool?
CC: At times it was used as another government department. It has to survive on its own steam. So, all the decisions taken throughout the past year and that will be taken in the coming months and years, have to make commercial sense.
MX: Was there prolonged mismanagement at Air Malta? CC: Well, I mean, ultimately, at the end of the day, if it wasn’t the case, I wouldn’t have had to take such actions now.
MX: Is there responsibility that should be shouldered?
CC: I have to look forward. I can have endless conversations discussing what went wrong and, perhaps, what should have been the solution. But the here is now. So my ultimate responsibility is that I have to make sure the airline continues to fly, that there’s a future. I’m very confident in that. We have to make sure we get it right.
MX: There was a suggestion that Air Malta should give up its national carrier status and operate flights on behalf of other airlines. What’s your take?
CC: I beg to disagree. If the airline operates on commercial basis, it can make it, but it has to operate strictly along those lines.
MX: Do you think the Vitals deal was good value for money?
CC: Certainly, there are significant problems. Otherwise, we wouldn’t be discussing this issue.
MX: How much would the taxpayer have saved had the hospitals not been privatised?
CC: I would look at it the other way around in the sense that the deal is not working because it doesn’t make enough sense to make it viable for its end-goals. For a business venture to work out, to make it flourish, you have to have profit. It’s very clear that the way all this works out isn’t generating enough revenue for them to make it viable.
MX: Stewart said this week that the deal is worthless for them. And at the same time, the government wants to get its hospitals back. So why not just part ways?
CC: At times, life is not that straightforward. There are a good number of legal implications. I’m not a legal expert myself, but from what I can understand is that there are a good number of legal issues that need to be ironed out before something like that can happen.
MX: Is the government ready to fork out more money to rescind this contract?
CC: There are many issues, and I’m not going to enter the merits of these issues for the simple reason that it’s not just one problem, but there are many problems that need to be tackled. It’s not just the money. Unless they are tackled in a very holistic manner, it would be a bit frivolous to try to just water down all discussion to money.
At times, Air Malta was just another government department
MX: Let’s talk about money, though. What would we have done with the money that the government paid to Vitals and Steward for the hospitals?
CC: If we look at the money, where is the money going? Most of the money is going to pay for employees. So, let’s say that the deal wasn’t there from the first day, most of the money would still have been forked out to pay for the wages and salaries. So, I wouldn’t portray the issue as if this is something that just revolves around money… It’s more about the capital aspect of the project rather than the running expenditure.
MX: The deficit stands at €1.6 billion. Does this worry you?
CC: No and I’ll tell you why. Last year, the targets I announced in the budget for 2021 was set at 11.1 per cent but the deficit is going to be lower, so that gives us a good indication that the economy is still running strong, and that gives me peace of mind that the deficit, of course, will eventually come in check.
MX: Do you have a timeline?
CC: The targets that we have and I’m very adamant that we stick to them is that we go below the three per cent limit set by the Maastricht criteria by 2024. So that is the first goal that we have to achieve.
MX: Do you plan to increase in taxes?
MX: So where will you get the money from?
CC: As I’ve always said, there are three ways. First, the economy grows and that will give us more revenue. Second, we have to make sure that what the government spends is spent correctly. And I think that we need to do some reviews. Thirdly, we have to make sure the government collects all its dues. So I’m quite sure that together with economic growth, looking at government expenditure and making sure that revenue comes in, I’m very confident that we can keep the deficit in check and eventually move towards a balanced budget.
MX: You recently launched an attack against those who don’t pay their taxes. The government is owed €5 billion in tax arrears. What would you consider as a success in terms of tax collection?
CC: I wouldn’t say it was an attack. It is an appeal whereby I’m stating the obvious. It is a civic duty to pay taxes. Throughout the pandemic, everyone expected government to fork out money to help the business community and save jobs. That was the obvious thing to do and that is what we did. But ultimately, at the end of the day, money does not come for free and neither does it grow on trees. So it has to come from somewhere.
There needs to be an overhaul at the Inland Revenue, the way how it operates. It has to have all the necessary resources required in today’s economy and that is where we are going.
MX: You spoke about a culture change to ensure that everyone who owes tax pays it. How do you intend cracking down on defaulters?
CC: Most probably over time, even if I don’t do anything, many people will start to align themselves. So even by just saying, listen, guys, we have to make sure that what is owed to government is paid. At that point, the Tax Department had a good number of individuals coming forward regularising themselves. The windfall of revenue that we had is not just the result of economic growth. People are regularising themselves.
MX: Does the government intend to continue exchanging their assets for money they owe to the government?
CC: We do not exchange. If you owe money to government, but you are asset-rich, you can dispose of that asset. If the asset comes in the government coffers, that is, you make up for your taxes with that money, the tax due on that property is not paid, but all the tax dues that have been accumulated, interest, penalties and so on have to be paid.
MX: Do you agree with the proposal that tax defaulters should be automatically excluded from public procurement?
CC: If there are no agreements in place, that is, if they have no agreements of how they are going to pay up for the taxes, yes. Because otherwise we would allow, in a legal way, unfair competition because someone who is paying his taxes would unfairly compete with someone who is not paying his taxes, because whoever is not paying can lower his unit cost.
MX: The Labour Party and the Nationalist Party owe €5 million in VAT. Is this not a bad example?
CC: Of course it is. Both political parties throughout the past months have and are in the process of trying to settle those dues.
MX: The IIP is a big revenue generator and the country has problems with other European member states and even the European Commission about these golden passports. Can the country live without the IIP?
CC: Yes. I mean, the sustainability of public finances does not depend on that programme. It’s something that helps. I cannot ignore that. But it’s not that the fiscal sustainability of the country depends solely on that.
MX: On greylisting, you’re optimistic that we will be out of it by this year. Has the government spoken to the FATF?
CC: Well, what has happened throughout the past week is that we have submitted all the work we did between June and December. That needs to be evaluated by the board and then it will decide whether it makes sense to pay a visit to Malta to sort of double-check what has been reported. From then onwards, they can make up their minds whether we should go out or stay for a couple more months. A lot of work has been done and we think that with the progress that has been registered over the months, they should be pleased.
MX: Does the government have a backup plan just in case its plan doesn’t work?
CC: We have to make it work.
MX: But is there a backup plan? What is the worst-case scenario?
CC: What we are doing is that we have to make sure that Malta comes out of this process ASAP, and we’re doing that.
MX: What if it doesn’t happen?
CC: It has to happen.
MX: But what if it doesn’t?
CC: It has to happen. And it has to happen because with the progress we’re doing, we’re quite confident that in the areas where we failed, and I have to mention that there were two areas, we’re registering quite positive progress.
MX: You mentioned last week a planned new mechanism to help the poor. Have you submitted this plan and what’s in it?
CC: Yes. Throughout the past week, we organised a meeting for social partners who represent workers. There were also some organisations who have interest in the social aspects such as Caritas and the Alliance Against Poverty. So, the idea is having an additional mechanism to the Cost of Living Adjustment (COLA). The purpose would be to have a mechanism which addresses spikes in inflation, and that help is purely focused on those who are really in need: pensioners and people on low income.
MX: Is there a timeline for this?
CC: Hopefully something like this would be concluded this year so that it is part of this year’s budget speech.
MX: Unemployment is on the low side. But employers still complain that they can’t find people, especially in certain sectors. Do you think we should revisit that plan of importing workers?
CC: It’s not something that stopped but was hit by the pandemic. Malta is the only economy in Europe where, in terms of numbers, the demand for labour did not contract at all throughout the pandemic.
Not across all sectors. There were some contractions in hospitality. But by and large, as an aggregate, the numbers still kept on increasing month after month.
What happened actually was that the people who were in the shadow economy were regularised because otherwise they wouldn’t have benefited from the wage supplement. Now, the economy is still growing. We are expecting the economy to keep on growing throughout the coming years as well. And therefore, as a result of that, the demand for labour will continue to increase.
MX: Let’s talk about you. You never contested an election. Do you think unpopular stances that you took on tax and on Air Malta are going to damage your electability?
CC: No. I strongly believe in whatever I say. I will keep saying things I strongly believe in. And I think that frankness is something the electorate appreciates.
I think that frankness is something the electorate appreciates
MX: How much of your soul are you ready to sell to get elected?
CC: Zero per cent. I’m doing whatever I can do in my capabilities to do the best out of this job. If people, of course, are happy with that, they will vote for me.
Others perhaps will choose other candidates, and they’re free to do so, but ultimately, so be it. I will do whatever I can do for the job but that’s it.
MX: What do you think of Oliver Scicluna’s comments on clientelism in politics?
CC: I think he was discussing something that is quite endemic to this country.
MX: How can it be stopped?
CC: It’s a culture change. The culture change this country needs in a good number of areas is quite substantial. You cannot expect that things change overnight from this to that.
MX: Is Labour going to win the next election?
CC: Hopefully, yes.
CC: Because I think we are committed to do what is right. The energy, the dedication and what we really believe in, social justice, we have provided provided enough evidence throughout the pandemic. True, mistakes were done. People, of course, took note of all this. No one is perfect, but ultimately, at the end of the day, I still strongly believe that the best choice for this country for the coming years, in order to make sure that the economy continues to grow and in order to make sure that social justice continues to prevail, is still labour.
MX: What were the biggest mistakes?
CC: Enough was said about them. People have read a lot about what has happened throughout the past years, there’s no need for me to outline anything about this. I mean, everyone who has lived in this country knows what has happened. What we really need to do is that we have to look forward and we have to make sure that the challenges that we have ahead of us must be addressed.
I strongly believe that Labour is the party and government that can address these challenges and make sure that people at the end of the day have the peace of mind that this country will continue to provide a decent standard of living.
The interview was carried out on Wednesday.