Malta’s open economy, like that of most EU member states, faces daunting challenges in the coming decade and beyond as a result of political, economic and social changes that are spreading at a global level.

The role of government in the economy will probably expand to encourage investment in public services like health and education, which are essential to creating a better, stronger, more prosperous nation for the next generation. The country’s economic future and fiscal responsibility are directly linked. There is an undeniable tie between projected public expenditure and what the government collects through taxation.

International organisations like the European Commission and the International Monetary Fund often recommend that the government tightens tax compliance and enforcement to ensure fiscal rectitude. After all, Malta has one of the largest black economies in the EU. In 2019, Malta also had one of the largest VAT gaps: the difference between the VAT total tax liability and the VAT revenue that is actually collected. The gap is a measure that reflects VAT avoidance, gaps in enforcement and unpaid VAT due to bankruptcies.

So the news that the tax authorities seem to be tightening up on compliance is indeed encouraging. The deal struck by the tax authorities with leading construction magnate Charles Polidano – under which he has coughed up €20 million of his dues – should be replicated with other businesses that owe substantial amounts to the tax collectors.

This will, admittedly, not be easy. Some companies that owe VAT, income tax and national insurance contributions may not have the necessary financial resources to commit to a credible repayment plan with the tax authorities. Then there is the political and economic pressures that some companies exert in order to get an easier ride. Finance Minister Clyde Caruana is reported to have directed the authorities to halt issuing payment plans for significant defaulters and, instead, start insisting on large lump sums being paid out. This is the right approach to promote effective tax compliance and enforcement.

Another positive development is the report that the FIAU has recovered “millions” by ratcheting up its efforts to combat tax evasion. Malta’s long struggle to restore its reputation in the enforcement of anti-money laundering regulations needs to be evidenced by action on the ground that goes beyond political rhetoric.

Some in the business community will argue that now is not the right time to tighten up on tax compliance and enforcement. They might similarly object to more fiscal rectitude and urge the government to extend the support given to businesses during the pandemic and, more recently, during the Ukraine war that is partly to blame for a surge in inflation.

Still, the stark reality that the country faces is that if the government fails to quickly address the growing imbalance between public commitments and available revenues, we will squander the only opportunity to get our finances in order before addressing structural socioeconomic weaknesses.

Slow-burning issues like the ageing population, generational equity and long-term economic stewardship are rarely discussed meaningfully at the political level. These issues will define the well-being of our society for the next two or three decades. It is in this context that effective tax compliance and enforcement become crucial.

Ultimately, the choice rests with every person. We can demand that our leaders undertake the kinds of reforms needed to put our society’s long-term prosperity on a sustainable trajectory. Or we can continue to pretend that our choices have no consequences and let future generations pay the price in lower living standards.