The finance minister stole the headlines last week when announcing that a reform of the tax system is well and truly on its way. For the past decades, our current tax system has allowed us to build a competitive edge, resulting in a financial services industry that continues to provide the country with significant revenues while, at the same time, providing thousands of jobs.
In truth, what was announced by the minister should really come as no shock. This has indeed been on the cards for quite a while now with considerable discussions and proposals progressing at both EU and OECD level.
It is therefore welcome that the work on reforming our tax system has started, with the next budget being slated as a date for a first glimpse of the reform. It is, of course, critical that all the main stakeholders and industry leaders are able to provide their inputs to ensure that the reform we carry out now will serve us for a number of years to come.
This reform, however, will need to be part of a major rethink of the economy as a whole. There is no doubt that at both a local and international level, we are facing a very complex environment. The major economies in the world are all gearing up for the green transition with huge investments being put in by China, the US and, indeed, the EU. The EU has cobbled together the Green Deal which aims to make Europe the first climate-neutral continent by 2050 while slashing by 55 per cent greenhouse gas emission by 2030.
If there was any doubt whether the EU’s drive towards the Green Deal was the right one, then the confirmation came from the USA’s Inflation Reduction Act (IRA) which aims at funnelling some $370 billion in subsidies for the energy transition, including tax cuts for US-made electric vehicles.
On the other hand, China still leads the world in renewable energy production figures and is the world’s largest producer of wind and solar energy, as well as the largest domestic and outbound investor in renewable energy.
The European Commission has now launched the Green Deal Industrial Plan which aims at enhancing the competitiveness of Europe’s net-zero industry while accelerating the transition to climate neutrality. It will aim to do so through a mixed approach using subsidies, regulatory reform and enhancement of skills. It is here that we need to undertake a serious rethink of our own industry.
We need to exam whether the industrial sectors we are currently engaged in have a future in this new clean tech environment. We need to understand how the sectors we have are likely to evolve and, once we understand this, we need to ensure that we will provide the right tools and environment for this evolution to take place at the same pace as the rest of Europe and, if possible, faster.
Put aside the ludicrous claim that it is the construction sector which is guaranteeing our prosperity- Stefano Mallia
And such an exercise will need to go beyond the provision of favourable tax regime. It will require a review of permitting procedures, the whole regulatory environment, waste disposal, the provision of the right skills, etc.
At the same time, we will need to undertake a serious look at other important sectors such as the construction sector and the tourism sector. Moving forward, can we really afford to contemplate having an exploitative construction sector such as it is today?
Put aside the ludicrous claim that it is the construction sector which is guaranteeing our prosperity. Can the tourism sector, based as it is today on mass numbers, really be a sustainable model moving forward? Put aside the equally ludicrous claim that we need five million tourists annually. It is clear that both industries cannot survive with the current unsustainable model.
Can we continue to build our economy on a significant number of imported labour most of which is low-skilled? The finance minister himself is warning that, here, too, we are on an unsustainable path.
Can we continue with just 30 per cent of all companies paying taxes while the remaining 70 per cent claim to be making a loss? This is unacceptable on so many levels that it boggles the brain.
It is as clear as daylight that a serious rethink of how we are conducting our business is required.
We have a Malta Sustainable Development vision for 2050. We also have a Malta Economic Vision but, yet, the path as to the real way forward seems unclear. The reforms that need to take place are well-known but are maybe unsaid because of the inevitable pain they carry with them. The finance minister has stepped into the breach but he alone cannot drag the economy forward.
A momentum for real reform needs to be created. The social partners, through MCESD, under its new chair, need to be at the forefront of this, pushing for a real undiluted path of change, a change that really serves the country in the medium to long term.
This will require courage at all levels, not least at government level. Such an effort has to be a national one. It must, however, be led by a clear vision of having a fair, sustainable and, indeed, healthy society, a society we unfortunately seem to have lost along the way to so-called prosperity.
Stefano Mallia is the president of the Employers’ Group at the European Economic and Social Committee in Brussels.