The government announcement last week of changes to the Permanent Residence Scheme, which were suddenly suspended at Christmas-time last year, have received a conflicting reaction by the constituted bodies.
The Real Estate Section within the Malta Chamber of Commerce, Enterprise and Industry said that certain thresholds introduced in the High Net Worth Scheme to replace the Permanent Residence Scheme may impinge on the attractiveness of Malta’s offering.
In a statement, the section welcomed the introduction of a scheme intended to attract foreigners to take up residence in Malta. Its introduction, it said, was long overdue and the delay had caused great uncertainty in the market, especially when neighbouring Mediterranean countries were introducing far more advantageous schemes.
Despite the fact that the Permanent Residence Scheme had not been designed to sell property in Malta, it went a long way towards incentivising overseas nationals to purchase property here and stabilise the property market, generating millions of euros for both the private and the public sectors since its inception.
Moreover, this occurred in a negative global economic climate and the fact that the property market in Malta remained relatively stable was a major contributor to the well being of the Maltese economy in turbulent times.
The section said it feared that the announced thresholds could have negative repercussions on the property market in general, with a ripple effect on all other service providers, not only to the property industry but also local business in general.
“Whilst appreciating that the introduction of certain measures were necessary, the section is apprehensive that the new rules may be too onerous.
“The section also feels that the new cost of joining the scheme is somewhat exorbitant,” it said.
The aim of the new scheme is to provide a solution that reflected Malta’s quality and value, which attracted truly high net worth individuals, who would really be able to generate wealth and economic activity on our shores.
GRTU
In a long article in the GRTU newsletter newSTRING, the government was practically accused of siding with property speculators.
The Scheme announced by Minister Tonio Fenech to help those who own the thousands of empty apartments that remain unsold, and others believing that productive investment as compared to speculative property dealings is a much faster road to really big money, is not bad in itself, GRTU said. It does, however, speak very badly about the principles that rule this government.
There is something very, very wrong when a government is so ready to side with hoarders of property and speculators against the better interests of the rest of the community.
Again and again, over the last few years, this government has exhibited an unreasonable and lengthy love-affair with property speculators, it said, and many erstwhile staunch supporters of this government detest this deeply and deeply. Most small business owners fall precisely in this category. They never ask government for anything and they never get anything anyway – apart from additional burdens.
First there were the incredible rounds of amnesties to absolve the frauds of those who were quick to move their funds illegally to foreign money markets or hide them in Malta itself, irrespective of the laws being broken, the article began. The law proved over and over again that there was one law for the small man and another, very different, for the speculator who evaded paying tax on millions of lira.
Government was quick to issue amnesties and was happy to see the money back in circulation – official money-laundering really, without even the slightest direction as to where and in what this flow of moneys could go.
Then GRTU was brought in on the ticket as well, to give support even though many in the organisation objected most strongly.
GRTU director-general Vince Farrugia then insisted that the government divert these funds to socially and economically desirable investments through the creation of appropriate bonds so that the millions laundered through the amnesties would not flood the property market.
Government was, however, only keen to prop up its financing by the addition of the small fines imposed on those who grossly enjoyed the amnesties, according to newSTRING.
Fiscal frauds are wrong in principle, but at least an effort should have been made to obtain investments with this laundered dirty money from which the community could benefit. Instead, those with the laundered money were given a free rein to compete with the clean money earned by the honest, tax-abiding investor.
This money was money that was driven out of the Maltese economy when the Maltese economy badly needed these millions to create new jobs, but the new jobs were created through the work and taxes of those who did not evade paying tax and did not breach any exchange control regulations.
The vast majority of entrepreneurs worked and paid their taxes and invested in property, which was theirs after tax.
When the new flow of money rushed in – a total of nearly €1 billion representing a total gross tax evasion of more than €300 million – what happened was that the price of property shot up beyond whatever any small operator could afford.
The worst victims were young couples and first-time home buyers and families who wished to buy a larger home as their family grew. As a result of government rushed amnesties, these honest people now had to break their backs to meet the new hefty prices that property owners were demanding.
Many small contractors in the construction industry enjoyed the new building boom and government appeared happy to see an artificial growth in the GDP.
However, any economist worth his salt knew that this was short-lived and represented very bad economics. The banks then were enormous and so unjust. The new laundered money owners were the lords. Our banks were more interested in financing new property development and most bankers began to see small entrepreneurs as a nuisance, GRTU said.
They were interested in the hundreds of millions not in the tens of thousands demanded by the self-employed.
The distortion that was registered in the Maltese economy is still visible for all to see. Like all property booms before, however, the amnesty-generated property boom soon came to an end.
Unfortunately, the worst recession to hit the industrialised world in 60 years hit us as well. Our enterprises – already bleeding from the reluctance of banks to consider them a priority in the boom years – now had to face the recession with plants and systems that were not smart enough to meet the new threats and challenges.
It did not matter too much to the government – it took three years for it to listen to the cries of GRTU to provide a sound financing package to help small businesses invest and grow.
The Micro Invest scheme did help, but only marginally. The Microcredit scheme came in two years too late and it was up to the Bank of Valletta to save the government as the government had actually done nothing to really save small business owners from the credit famine that faced them.
Through EU funding, Malta Enterprise produced a number of interesting schemes and so did the ETC. However, when you take the hundreds of small firms who benefited as a percentage of the total number of small business in Malta, the total is really insignificant.
That is why this government is so unpopular among the large community of self-employed and small business owners. These are the people who suffered the brunt of the increased bureaucracy and arrogance of bureaucrats as the whole of the acquis communautaire was imposed on small Maltese enterprises and in return they received practically nothing. They always sweated on their own and their valiant work for the politician in power is only a statistic to boast about as elections get closer.
It is, however, not the same story when it comes to property speculators, who make millions even if they evade as many taxes as they can possibly manage. Money begets money and money opens doors.
For the first time in many years, young couples and small operators were reaching out to buy properties that they could somehow afford as the pressure by the banks on many speculators who owned the properties unsold and heavily burdened with bank loans forced these speculators to put the properties on the market at prices that families and small businesses could afford.
The market was slowly moving to find its true base, as demand for the previous high prices simply did not exist. Many Maltese home buyers were up until yesterday breathing a fresher air. They were also betting that, as the pressure grew on the speculators to reduce the price of the hoard of properties they owned, those properties would become even more affordable.
Many really believed that this government was clever enough to actually plan a property purchasing push by families as prices continue to tumble. Many self-employed people were already seeing that demand for their services was on the increase, as new house-owners searched for finishers and furnishings.
But that’s not how those who decide for us in government think. They somehow thought of the speculator first, not the whole community.
There is a glut of property on the market – not just in Malta but also in most other countries competing for foreign buyers. Speculators who invested in properties in Malta, hoping to make a quick return by selling to foreigners, believe that the foreign buyer is there and that foreign sales are the answer to hiving off the more expensive properties.
Government has now come forward with a scheme that is not bad in itself, but the aim is clear: it wants to halt the slide in property prices and is helping speculators keep the price of property from falling any further.
One cannot talk of two separate markets, one for foreigners and one for Maltese, the market is one. Government knows this very well: they have the statistics and they made their studies carefully.
The political decision has been taken: government is choosing the speculator over the young couple, the family that seeks a larger home and the small investor who wants to buy property to expand his business, GRTU said.
Government ministers believe they can interfere in the property market without imposing a socially unjust feedback. But it is not like this. It is wrong economics and it’s socially unjust.
Government acted wrongly when it introduced tax amnesties without seriously channelling the laundered money that flowed back in the Maltese economy. Now it has again succumbed to the speculators.
The question we seriously ask is simply: What’s so wrong with this government? And with the Opposition too, as they pressed harder to make the speculators happy. It’s the little man that never has any friends. This is the political power of property speculators.
Government would have been wise to promote a policy that made social and economic sense by launching a wide-ranging scheme that gave tax advantages to Maltese young couples, families and small enterprise owners to buy the empty properties.
There are enough tax advantages to foreigners in discrimination against tax paying Maltese citizens. It is high time that tax advantages are given to the Maltese.
It is a shame that some business community representatives continue to promote tax advantages to foreigners rather than to Maltese taxpayers.
The speculators friendly tax advantages to foreigners that Minister Tonio Fenech and the Cabinet of Ministers have approved are aimed at rich Russians, Chinese, Iranians, Arabs and Africans.
The 500 million European members of the EU do not need and cannot be tax-advantaged. EU citizens will only benefit if the long list of tax obstacles still hampering free movement of citizens across EU borders are removed. That is what GRTU, through its representative at EESC, has strongly advocated.
This property speculator-friendly measure is anti-Maltese and anti-European. It stinks, GRTU concluded.
Malta Developers Association
In a statement, the Malta Developers Association noted that the new government conditions for permanent residents are considered by many developers as imposing financial thresholds that are too high.
The MDA understands the genuine motivation behind the government’s decision, even though some of its members may be adversely affected.
Contrary to popular perception, the financial thresholds and constraints in the new scheme do not apply to all foreigners who want to buy property in Malta but only to those who want to become permanent residents, a status that leads to heavy social burdens on the Maltese government. Foreigners buying property in Malta only need an AIP permit, which does not include the privileges of permanent residency.
Contrary to what has been capriciously claimed, the new parameters of the permanent residents’ scheme do not help to prop up property prices.
Neither the government nor the MDA are in favour of property prices being artificially high, as had happened in the past, because this is economically unhealthy.
As a serious organisation, the MDA is currently discussing with the government proposals for fiscal incentives indicated in the current economic situation, none of which involve amnesties or reducing taxes levied on developers’ profits, the association said.
Government reply
In a reply to the statement by the Chamber, the Finance Ministry said that while acknowledging the concerns of the real estate sector, it would like to reiterate that the percentage of properties purchased by foreigners who are holders of permanent residency status is very low, compared to the total number of properties purchased by foreigners over the past few years.
“Indeed, while it is estimated that over 15,000 foreigners live in Malta, only 1,042 are Permanent Residence Holders.
“Over the past four years, 3,457 properties have been purchased by foreigners in Malta. However, only 123 of these were permanent residents.”
The ministry said that the former scheme required the payment of only €4,193 in taxation.
On the other hand, following EU accession and the subsequent transposition of EU legislation, after five years in Malta, permanent residence holders were eligible for free health care, free education, over and above the significant fiscal and Visa benefits enjoyed by the scheme members.
This was onerous and detrimental to the economy, while also being unfair to the Maltese taxpayer.
The government, the ministry said, has introduced a number of initiatives and schemes that have attracted foreigners to purchase property in Malta.
These include incentives towards temporary residents and the highly qualified person scheme, as well as the general transformation in our economy that has created a number of high value-added jobs in financial services and e-gaming.
These sectors have not only created thousands of higher-paid jobs for Maltese citizens, but have also attracted a number of foreigners to our shores.
The government will be actively promoting the new scheme, particularly through Malta Enterprise and Finance Malta, to ensure its success, the ministry said.