An eerie quiet has fallen on the financial services industry after the pre-electoral frenzy. It is the gaunt quiet of the cool, mouldy cellar with the heady odours of ageing barrels of whiskey.
Our financial services industry is built on a number of pillars some of which shook in a recent earthquake and quivered dangerously revealing structural weaknesses that we are all now conscious of.
Quite apart from the sales spiel, two pillars are fundamental for this edifice: the first is the competitive advantage of our tax system for non-residents. It all boils down to being cheaper – much cheaper – than our competition, putting a moral façade on what is effectively our clients avoiding paying tax in their own countries.
That pillar periodically comes under attack by those countries who carry the burden of revenue leak that favours us. We dig canals to flow their water in our direction and bigger valleys feel the thirst. They can’t afford to match our tax rates because they have massive countries to run. All’s fair in love and war, the saying goes, so we are not doing something strictly wrong because after all we do not cover up for tax dodgers or money launderers. That is our official line and for as long as we’re pure and virginal our position is unimpeachable. The moment we’re caught banking for the ‘Ndrangheta, things become complicated for us.
And the moment money laundering allegations reach the highest levels of our public administration, things get even more complicated. Because that is when another pillar that holds the whole thing up starts shaking: the pillar of trust. You can write the best laws, publish the glitziest prospectuses, and deliver the handsomest speeches. But what makes people leave their money in our vaults is trust and confidence that if the proverbial hits the fan, their money is safe.
For that they need to know that this is a sane and stable jurisdiction where institutions are stable and the law rules. Believe me when I say Zimbabwe can publish supremely comforting legislation and its central bankers can host the best parties. But no one is ever going to believe a central banker who dipped into people’s personal bank accounts when his boss, the President, was tight on cash. And even if they did they would have no confidence a judge or a policeman would stand up for them against the President if they sought recourse to some sort of justice.
Now it’s a universally accepted fact in the local industry that the state’s chief lawyer, the chief policeman, the chief banking regulator and the chief anti-money laundering czar, have formed a club of amateur, grizzly clowns.
But silence has fallen on the financial services industry in the 3 weeks after the election after the Prime Minister made some right noises in his speeches to compensate for his wrong noises in his appointments. As people wait for outcomes of magisterial inquiries; as the parliamentary opposition is fully absorbed dealing with scrubbing its navel and falling over itself to bite the bait set by the government’s decoy deployments with side shows like same-sex marriage; as Daphne Caruana Galizia does whatever it is she does when she’s not peeling the carpet to expose the rotten floor-boards; a cold silence has fallen.
It is incredible to me now that we treat June 2017 as though it were just like any other.
Will the cork hold?
Let us be positive, as the hegemony wants us to be, and collectively hope so. If we are to be positive, we must also be constructive.
Use this time to look again at those pillars and what we need to do to fix them.
First, let’s come to terms with the fact that post-Brexit the pressure for tax harmonisation in the EU is going to increase, not decrease. We may or may not be able to resist it but we make too much money from this business to allow this sort of risk to fester unmanaged. In the late ‘80s Malta started out as an off-shore, tax-dodging, secretive destination. At the time that was our unique advantage: to be a tax-haven for people who needed that sort of shelter. Our EU-membership ambitions made those structures incompatible with our greater plans so we had to re-invent ourselves as a compliant but competitive jurisdiction.
It is time to think again about how we can remain competitive without being as far cheaper fiscally as we are now. We are one of the top 7 shipping registers in the world but we’re nowhere near the cheapest. Far from it. But we have drawn up a set of advantages (excluding cost) that make us attractive. What can we do to extend that logic to banking and finance?
Secondly, let’s start rebuilding the trust in our institutions. For that we must follow the government’s lead but we must also lead the government in understanding that we will safeguard our livelihood and to do so we will put on them – the government – all reasonable pressure to address this blatant and gross weakness.
For that we need the Nationalist opposition to whip itself into shape as quickly as possible and stop falling for the traps and distractions set for it by the prime minister.