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The story of 2016 | Panama, how it shook Labour to its core, leav… – MaltaToday

In 2016 it was all about Panamagate. But by retaining Konrad Mizzi in his executive and Keith Schembri besides him in Castille, Prime Minister Joseph Muscat stubbornly failed to recognise the extent of the public outrage at these revelations

jurgen

Jurgen Balzan

27 December 2016, 7:20am

Joseph Muscat stood by his men and by his own admission, he evidently considers himself unable to complete the energy plans without Konrad Mizzi or run the country without Keith Schembri

Joseph Muscat stood by his men and by his own admission, he evidently considers himself unable to complete the energy plans without Konrad Mizzi or run the country without Keith Schembri

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Joseph Muscat’s audacity to jokingly say that his shrinking waistline is the result of a Panama diet confirms that he has weathered the worst storm to hit his government but the damage inflicted by Panamagate is permanent. 

The Panama Papers are an indelible stain on Labour’s desultory governance record, permanently denting the government’s pretension of ever having held the moral high ground in politics. 

Surely, Muscat’s credibility was severely dented by the previous Café Premier and Gaffarena expropriation cases but the revelation that two of his most trusted men, minister Konrad Mizzi and Muscat’s own chief of staff, Keith Schembri, held offshore interests rattled Labour.

The Birth of PanamaPants (Cartoon: Mark Scicluna)

The Birth of PanamaPants (Cartoon: Mark Scicluna)

The two, but especially Mizzi, are accountable to the people, and by setting up offshore companies they betrayed the electorate’s trust by not being above suspicion in adopting financial structures that could be employed for the hiding of illicit earnings. 

In this act alone, Muscat’s men endangered a government and bred mistrust, making a mockery of Labour’s commitment to democratic governance.  

Many, including die-hard Labourites, now see the Labour government as no different from previous Nationalist administrations; dishonest and greedy. 

And by retaining Mizzi in his executive and Schembri besides him in Castille, Muscat stubbornly failed to recognise the extent of the public outrage at these revelations.

Although no illegalities were carried out, Mizzi and Schembri’s plans to relocate potential business earnings offshore, unbeknown to the Inland Revenue Department, were nothing short of tax avoidance of the highest order. 

But Muscat stood by his men and by his own admission, he evidently considers himself unable to complete the energy plans without Mizzi or run the country without Schembri. 

This has not only startled Labour die-hard voters but switchers are severely disappointed by Muscat’s failure to realise that his government has now lost the sheen it had when it was elected in 2013. 

Panama Papers was a lost opportunity to genuinely redeem the Labour administration’s clumsy and rotten governance record. 

Cartoon by Mark Scicluna

Muscat’s decisions in the aftermath of the Panama scandal were cold, political calculations, aimed only at limiting the damage already done.

For a prime minister who once said he wanted to govern in poetry, not prose, Muscat’s inability to act swiftly and decisively remains an albatross around his neck. 

For not only are people losing trust in the so-called political class but Muscat has also undermined his moral authority and set very low standards for his government. 

Ministers and officials embroiled in current and future scandals will expect to be treated with the same leniency.

Labour has so far survived the Panama storm but the issue is far from settled. Questions on a third offshore company set up for a yet unknown person remain unanswered and the European Parliament’s inquiry on the Panama Papers – with a delegation set to be in Malta in February – will shed light on the extent of tax avoidance and evasion in Malta. 

Opposition narrows Labour’s lead 

Unsurprisingly, with Muscat dragging his feet for weeks on taking action over the Panama revelations the Nationalist opposition seized the opportunity and organised two rallies in Valletta which piled more pressure on the government.

However, the PN’s decision to take centre stage and lead the protests – instead of making way for civil society as happened in Iceland and other countries – might have diminished the demonstrations’ effectiveness by tainting the protests with partisan politics. 

Panama also presented the opposition with an opportunity to take a clear stand on tax dodging schemes and pledge that no current and future MPs and officials have offshore interests. 

The PN has already mapped out a blueprint for political reform where it comes to standards of good governance but with growing distrust in the political establishment, this puts the opposition in no better position to tackle the matter than Labour was following its momentous victory in 2013. 

Yet, following the Panama revelations, the PN enjoyed a small but significant resurgence in the polls with the MaltaToday survey conducted in the subsequent weeks showing the PN narrowing Labour’s lead to just one point while opposition leader Simon Busuttil gained four points in the trust barometer. 

The March survey also showed an increase in Labour voters who trust neither of the two leaders and Panamagate left a greater impact on switchers, with the percentage of those who trust Muscat more than Busuttil declining from 38% to 23% while those who trust Busuttil more than Muscat remained stable at 27%.  The percentage of switchers who trust neither leader shot up from 22% to 41%.  

In the following months Muscat and Labour increased their leads to 7.5 and 3 points respectively, further confirming that Labour had weathered the storm despite coming out of the scandal permanently bruised. 

Panama goes beyond national politics

Panama Papers is not just about Konrad Mizzi and Keith Schembri. It is about the global system of tax avoidance, where trillions of dollars disappear each year from national tax systems.

Cartoon by Mark Scicluna

The Labour administration may have weathered the storm, but the long-term consequences for the government could be serious. Questions are being asked at international level: almost costing Leo Brincat’s nomination to the European Court of Auditors for the fact that he voted in Mizzi’s favour in a no-confidence motion. 

Ultimately, the Panama Papers leak is about the politics of wealth, not just about the people and companies caught with their pants down. Global tax avoidance is a huge problem, and the biggest concern is that it is perfectly legal.

The World Bank and the International Monetary Fund (IMF) warned that the industrial scale of international tax avoidance revealed by the Panama Papers represents a “great concern” for the global economy, and is having a “tremendously negative effect on our mission to end poverty”.

It is admittedly a complex issue. As with the international arms trade, there is an old argument that ‘others would step in if we pulled out’. It is undeniable that making one country less attractive to global capital will simply push the flow of black money to other territories. The problem is international, and requires a worldwide solution. 

Crisis of morality

Muscat’s decision to retain his two closest allies showed that Muscat sees nothing wrong with offshore in the first place; otherwise he would have taken the decision to sack Mizzi and Schembri straight away. 

Their claim to innocence and Muscat’s decision to keep them on board sent the wrong message, an admission that there’s nothing wrong in meddling with tax dodging schemes and attempts to minimise tax exposure. 

Unfortunately, the debate mainly centred on whether Mizzi and Schembri should have resigned or been sacked, killing any rational debate on the role of the financial industry in the Maltese economy. 

Cartoon by Mark Scicluna

Although it has never been blacklisted as a tax haven, Malta itself has gained an undesirable reputation as an offshore haven for illicit money within Europe.

Moreover, in order to maintain a competitive edge, Malta offers wealthy individuals and corporations advantageous tax rates, using tax breaks to attract investment: some of which could possibly originate from criminal activities, as shown by a recent crackdown on online betting companies with links to the Italian mafia.  

On a global level, this race to the bottom often irks larger economies and the EU’s economic powerhouses are less than pleased with the laxity of Malta’s tax regime.

Every year Malta wipes out €4 billion in foreign tax by giving shareholders 85% rebates on their tax and the involvement of Malta-based companies in the Panama Papers placed Malta’s imputation system under the limelight of the European Parliament’s investigation into tax avoidance practices.

Yet, both major political parties are in agreement on protecting the current system and resist any attempts to regularise taxation at a European level. 

The moral question which has so far been avoided is what to do about Malta’s financial services sector being in thrall to the offshore game. If it’s immoral, then rules should be forthcoming to regulate the sector: rules preventing Maltese citizens from making use of offshore, if this can allow them to avoid paying tax at home.

Had Mizzi and Schembri’s name not been flagged by the Panama leaks, the two major parties would not have said a word about the global tax ruse that is offshore – a system of tax evasion that benefits from euphemistic semantics such as ‘avoidance’ or ‘tax planning’ or ‘minimising tax exposure’. 

Cartoon by Mark Scicluna

In reality, it is simple tax evasion rendered legal only through the sheer power of sovereign might. Malta spent years making its transition from offshore to onshore, ensuring double taxation agreements and tax information exchange agreements according it the status of a respectable tax regime. But how else would one describe the use of Malta as a base for foreign shareholders to get 85% lopped off their tax on dividends, if not a tax evasion of sorts? 

That system of ‘legal tax planning’ is responsible for hundreds of millions in international tax left in the country’s coffers, and it is a system jealously guarded by our financial services industry because it guarantees millions in billings for the audit firms, and hundreds if not thousands in direct jobs for tax auditing. 

For this reason, exposing and criticising the system is deemed treacherous and Muscat and Busuttil speak about ‘pulling the same rope’ on tax and financial services. 

Intermediary companies and individuals who offer such services play a central role in this system; and while they undoubtedly act within the parameters of the law, they also act as vehicles which shift money to places which guarantee secrecy, low or zero income tax rates, and non-cooperation with tax authorities from other countries. 

Cartoon by Mark Scicluna

Ultimately, Malta should have a mature debate and decide whether being an actor in the international orgy of tax evasion, money laundering and kleptocracy is or is not acceptable.

Both Labour and the PN venerate financial services as an untouchable pillar of the Maltese economy. Both parties have so far defended the industry tooth and nail, as long as anything it does falls within the confines of legality. But this is clearly not good enough, when the entire industry is geared towards finding loopholes within the system. 

Ultimately, Panama Papers poses an intriguing moral dilemma for Muscat. Despite maintaining a diminished yet comfortable lead in the polls, Muscat will be haunted right up until the elections, and perhaps beyond, by a crisis of morality caused by his own unwillingness to do the right thing, and send the message that offshore is wrong, and that politicians who make use of tax secrecy cannot remain in office.

(via Google News)