The one issue that did not feature significantly in Budget 2007 was tax evasion. The omission is not minor; I suspect it may even be intentional. The Opposition’s silence on this issue, one that should be of particular interest to a socialist party, is weirdly deafening. Malta’s two-party political system does mean that when an election approaches, parties aiming to attract 50 per cent + 1 of the electorate refrain from stepping on the toes of any particular sector, even when the toes belong to voters who cheat the country rampantly and shamelessly. Parties like the Greens, aiming only for parliamentary representation, are free to talk about such issues. We have no qualms taking sides in such matters. In actual fact, in our budget proposals we specified that government should make a more targeted effort on those businesses that continue to operate on an “open cash register” basis.

The extent of tax evasion in Malta is still very significant; it has even been quantified. In fact it was Tonio Fenech himself who, a year and a half ago, declared that the rate of tax compliance in Malta was 65 per cent. The resulting tax evasion of 35 per cent equates to at least Lm100 million in lost revenues for the government every year. With half that amount of money in the State coffers, the deficit would be history. The other half could serve to overcome the pension problem without forcing everyone to work till their mid sixties and/or forcing everyone to take up pension schemes that are certain to erode purchasing power. In this regard, reducing tax evasion should be both an economic and a political priority. It would certainly serve to bring about more social justice by providing more for the working class and easing the tax burden further on the middle class.

However, when dealing with tax evasion one must be realistic. It is simply not possible to achieve a tax compliance rate of 100 per cent. There are both resource and logistical limits to combat tax evasion before the exercise becomes unduly oppressive and perhaps even counter productive. Even the countries with the best observance of fiscal laws, only achieve compliance rates of around 80 to 85 per cent. It is not coincidental that the countries with the best compliance rates are the ones with world class social services. While there is no justification for tax evasion, it goes without saying that populations are more willing to pay taxes when they feel they are getting good value for their money. While people have a legal and moral obligation to pay their taxes, the government has the political responsibility to spend every last lira of their taxes wisely and cautiously.

In order to register success in combating tax evasion, the government should embark on a three-point strategy. The first is to have a strategy to weed out the rampant abusers. I have been saying for some time that the fairest and most effective way to do this is to adopt a bottom-up approach. This would involve the Tax Compliance Unit targeting those who are still submitting ridiculous declarations. The government should have no problem targeting those who operate successful businesses and declare incomes marginally above those declared by middle-class employees. The “open cash register” system operated by certain retailers should not be tolerated. Labour should be supportive of such measures; the Greens certainly will. The representatives of business may object, but I still believe that the use of sectoral benchmarks is the fairest method to deal with shameless abusers, particularly those who also have the cheek to claim social security benefits. It is crucial for businessmen and their representatives to be supportive of such a strategy. Rampant tax evasion stifles competition by allowing certain operators to price out competitors by not charging VAT and by not having to shoulder a reasonable income tax burden. There can be no level playing field in business when a minority compete on tax declarations.

The second part of the strategy is for the government to make a commitment to channel a significant chunk of the additional revenue emanating from the fight against tax evasion into assisting families raising children, either through family tax cuts or through children’s allowance. In order to obtain popular support for the fight against tax evasion, those submitting honest declarations must know that there is something in it for them.

The third part of the strategy is for the government to ensure that it spends our money efficiently and effectively. Fiscal morality must work both ways. A government that is careless with people’s money cannot prick the conscience of tax evaders. There have been too many cases in which blatant inefficiency in government projects resulted in unacceptable cost over-runs. The Mater Dei Hospital and the port in Mgarr are two of the most serious ones. However, there have been countless others, the most famous of which is the resurfacing (four times over) of the road leading to the Prime Minister’s office. Apart from capital projects that go haywire, fraudulent claims of social security benefits also act as a disincentive towards inducing more fiscal morality. The more-than-obvious abuse in disability benefit (some 13,000 claimants) is a sore case in point. People will pay their taxes less reluctantly, if and when the government adopts a more disciplined approach to its expenditure.

Through the change in tax bands, Budget 2007 has been miserly to those on a modest income. It has been rather kind to those on middle to upper-middle incomes. It has been kindest however to those making a living off tax evasion. The Greens in Parliament will work to reverse this parody of social justice.

Edward P. Fenech is the spokesperson on finance, the economy and tourism of Alternattiva Demokratika – The Green Party