Yesterday I reported on the introduction of a new tax law that allows people selling property to use the income from the sale to settle tax arrears, getting an exemption from paying tax on the sale itself.
I criticised the measure as unfair because, among other things, it is designed around the needs of construction magnates and it is practically useless to any other economic operator with tax problems. If instead of building roads or blocks of fletsijiet, you have invested in some service or other business, you’re not given exemptions from paying income tax or any taxes on capital gains, if you use the profits or even the sale of your business to settle with the tax man.
The difference means that for the government construction magnates are more important than any other economic operator. They are a category all on its own, deserving of laws written practically ad hominem to suit their needs.
There may be some that argue that the environmental and quality of life cost of the industry should make the construction industry less deserving than other more sustainable economic activities. We should give tax grants to people recycling waste, say, or running trains on the methane from cow dung, and impose higher taxes on people who turn what’s left of our landscape into Mordor.
But let’s park that admittedly radical notion for a moment and say that construction should get the same tax treatment as everybody else. Well, it isn’t.
I cannot fathom the gulf between Finance Minister’s Clyde Caruana’s rhetoric and his actions. Last May, Times of Malta reported that Charles iċ-Ċaqnu Polidano’s €40 million tax bill was being shaved down through a generous deal with the government. Like many others I criticised the deal pointing out that part of it was iċ-Ċaqnu transferring to government a plot of land he owned to be developed for social housing.
I said such a deal required transparency because though the land was being bartered with foregone tax bills, Polidano was still in effect selling land to the government and we must be assured the government is buying it because it needs it and for a fair price.
Instead of giving any reassurances, Clyde Caruana savaged Times of Malta for their reporting. And then he proceeded to stand tall to argue about fiscal morality and the social contract like a marble statue of Abraham Lincoln.
“Such untruthful articles undermine the social contract between a State and its taxpayers, by giving the impression that appeasement is given to the preferred, when in reality the Government has embarked on an exercise to collect tax arrears which have remained uncollected for decades, giving all taxpayers fair and equal treatment to regularise themselves within the parameters of the law,” Clyde Caruana said.
Paroli għandna kieku.
The qualification “parameters of the law” is exquisite. Tax avoiders should expect that laws that apply when they decide to avoid paying tax should in any case be applied to them when and if the government gets serious about honouring its social contract with law-abiding citizens and turn on them to pay up.
But the law has been changed for them now in a deal that vindicates their decision to ignore the laws of the time and instead of paying money to cover their share of their employees’ national insurance or to pay on to the government the value added tax they charged to their customers or to pay the tax they owed on the profits they made in their construction business, they paid that money into more property which they are now selling for an untaxed profit.
Changing the law to benefit those who ignore it is not acting within the parameters of the law. Instead, it is rewriting rules within the parameters of the financial and political might enjoyed by very wealthy people.
When the Ċaqnu story came out I argued that the ad hominem deal struck with him amounted to a state-funded bailout restoring the viability of his business when an outstanding bill of €40 million in tax money which he had incurred over 20 years should have destroyed it. I also said that state-funded bailouts may be necessary under very specific circumstances and proceeded to ask some questions about that which I’m paraphrasing here with a more general application in view of this new law.
Is the government’s intervention disturbing a level playing field? In the context of the Ċaqnu deal the question was relevant because it had been struck with one developer and not with his competitors particularly, because one must presume they exist, developers who pay their taxes on time. The new law applies to all developers (in theory anyone selling property at all) so there isn’t a question of unfairness within the industry. But the question on this intervention to prioritise construction as an economic sector over others certainly stands.
The government must make sure it bails out businesses that are strategically relevant and sustainable. Surely, the government is not proposing to heavily discount tax dues from any business no matter what the business is and what it does. Will the government bail out the village haberdashery if people stop buying wool and beige underwear? Or will the government dismiss that as an ordinary evolution of business and unsustainable businesses must die in order to give way for innovative businesses?
Why, then, is road building and heavy construction a business this country needs to spend its tax revenues to subsidise into indefinite existence?
A bail-out must be tied to evidence that more bail-outs will not be necessary to save the same moribund business 5, 10 or 25 years down the line. How are the tax authorities assured they haven’t just waved goodbye to tax due on property being sold between now and the end of 2022, but also foregone the possibility of revenues from the future of the construction industry? Why do they believe people who avoided paying taxes up to now will now become loyal and timely tax-paying citizens after this amnesty expires?
A bail-out that subsidises a business, must subsidise only that part of the business that is commercially viable and for as long as that business operates within the law. Are all business units being rewarded by this tax break profitable, if they were to operate within the parameters of the law? Has any effort been made to restructure the industry and to weed out activities that do not make business sense or would not make business sense if they followed the same laws that you and I are forced to obey?
Have we just subsidised the vanity and megalomania of the Joe Portellis of this world? Has an exception been made not to reward with tax breaks illegal developments, funding environmental disasters by charging the taxes paid by the victims of industrial-scale outrage to our landscape?
Has any effort been made to stop the tax break from funding the personal lifestyles of wealthy tax dodgers? Clyde Caruana knows who I am speaking about. He spoke in Parliament of people wearing watches heavier than most people could carry, expensive cufflinks, and whose wallets are heftier than most people can dream. He complained about them bullying him when he ran Jobsplus dodging taxes which he was responsible for collecting at the time.
Are we allowing these people to keep their heavy watches while we exempt them from paying tax on their new profits in order to pay off some of the tax they owe for old ones?
When banks were bailed out (outside of Malta) after the 2008 crisis, governments told bankers they could no longer collect hundreds of thousands in bonuses because it was no longer their money. Considering how much money the banks needed to be saved, saving hundreds of thousands in bonuses would not have made a huge difference. But it was a matter of principle. Effectively, those bonuses would have been paid from tax-payers’ money and tax-payers cannot be asked to pay for the villas, the boats, the horses, the menageries, and the cocaine habits of the bailed-out bankers.
If any one of us owes money in tax, they need to sacrifice something of their lifestyle to put the money together to pay up. Are the beneficiaries of Clyde Caruana’s new law being forced to make any discernible sacrifice to their way of life? Have they taken a pay-cut?
A bail-out funded by the state is essentially a donation paid for by people who, quite ironically, paid their taxes on time. Some of the taxes you’ve paid every month for the last several years have gone to make up for the fact that these developers didn’t pay. You are entitled to know how this bail-out is being spent. More than likely on the thing you need least short of a hole in your head, another crane down the road building another crime against the living environment.
The sheer injustice of it all is unspeakable. Clyde Caruana’s social contract is a perverted arrangement of stealing from all to give to those among us for whom stealing from all is just what they do.