I am well aware that, in the firmament of democracy’s watchdogs, the media sometimes take on the role of paranoid retrievers – panting after and fetching every scrap of information that might remotely have to do with the story they’re working on. But that’s not what I’m doing when I point out the significance, for Malta, of Monday’s Italo-German webinar on ‘tax dumping’ and money laundering. Woof!
Keep in mind there are two fears shaping Europe’s politics today. The nationalists fear a takeover by unelected bureaucrats in Brussels, and possibly even a global elite. The federalists – those pushing for more transfer of power to Brussels – fear a takeover or significant contamination by organised crime as well as a global elite.
There is no doubting which devil is renounced by the organisers of Monday’s webinar. The European Greens have long been insisting on the adoption of new powers for Brussels to combat tax avoidance, by large corporations, and money laundering by organised crime.
The Italian centre-left, represented on Monday by Paolo Gentiloni, has a longer concern with the toxic impact of organised crime on national states and European governance.
Gentiloni is not just a former Italian prime minister. He is the EU Commissioner for Economic and Financial Affairs. When he nods to policy proposals for tax harmonisation, which would blow up the foundations of Malta’s financial services, we should sit up and listen.
Malta’s financial services are one of the country’s cash cows. They made possible the latest financial package.
The democratic legitimacy of any Maltese government is based on, partly, its ability to pass financial bills. Any encroachment on this power would require us to rethink the basis of our democracy.
Some will scoff at Monday’s webinar because any proposal on EU tax harmonisation will need Malta’s vote – and the votes of Luxembourg and the Netherlands (whose combined financial services industries manage some €10 trillion) and Ireland.
There’s more. Gentiloni’s predecessor, Pierre Moscovici, had in 2017 promised to explore the possibility of invoking Article 116 of the Treaty for the Functioning of the EU – to enable simple majority voting on the grounds that different national tax rates are ‘severely distorting the internal market’.
In 2019, he declared that Article 116 could not be invoked for that purpose.
But scoffing, alas, is so very 2019. Gentiloni now says that Article 116 needs to be ‘studied’. He still considers the issue open. What could have changed from last year? Not the letter of the treaty. Only the conditions in which political pressure can successfully be piled up to interpret the treaty in a new way.
Here is what is significant about Monday’s webinar. It made clear what the strategy is and how it has a path to success.
First, there is the battle over the moral framing of the issue. Imposing a new vocabulary is key. Tax ‘avoidance’ (using legal loopholes) is the same as tax evasion (illegal).
Tax becomes the neutral framework of all competition, not (as now) a service offered in competition with others. Different tax rates now become a ‘severe distortion’ of the internal market, rather than the market at work.
Such shifts in vocabulary contribute to making the current arrangements seem like a perversion of the EU. Different tax rates become unacceptable because they are blamed for a ‘Great Fragmentation’ (Gentiloni), following on the heels of, and perpetuating, the Great Recession, where companies were bailed out by taxpayers, who were then cheated of those companies’ taxes (since the corporations paid much lower taxes in places like Malta).
Second, the shift in vocabulary is linked to reasonable calls for proportionate European responses to real problems – like a European Prosecutor’s Office to pursue crossborder crime and money laundering.
Preventing a takeover of European governance by organised crime is paired with preventing the scourge of inequality and a takeover by global elites. The current ‘Great Fragmentation’ is opposed to a virtuous Europe that can finance a Green New Deal, a Next Generation Fund and the recovery fund for post-COVID Europe.
The last few years have exposed Malta to infiltration and state capture by kleptocrats and powerful criminals- Ranier Fsadni
The money for all this must come from somewhere. It would be politically unacceptable to increase taxes.
So the funding will come from the benefits of tax harmonisation, financial transaction taxes and taxes on digital services. It will be facilitated by a global register of financial assets.
These are not fringe proposals. They are part of a lingua franca of economists and politicians whose political allegiances span a large part of the mainstream European political spectrum.
The proposals are now being offered as an honest way of making sense of immediate and long-term crises – the pandemic slump, growing inequality and climate change. Their time is not yet come. But the wind is blowing in their direction.
Hence why it is naive for Robert Abela to proclaim that Monday’s package and Malta’s prospects of future development are thanks to the economic model of the last few years. Thanks for nothing.
The last few years have exposed Malta to infiltration and state capture by kleptocrats and powerful criminals. In turn, our lax governance has empowered the federalist arguments of politicians who fear that countries like Malta are threatening the very future of the EU.
Those were the disgraced Joseph Muscat’s years. But, so far, Abela has done nothing to reassure the federalists and a lot to confirm their bias. If he truly believes this doesn’t affect the stability of his medium-term plans, he must be – how else can this watchdog put it? – barking mad.