Good News and Bad News

 

Two articles on yesterday's Times of Malta inform us that (1) Malta has seen the highest rise in tax revenues as percentage of GDP among all EU member states and (2) that the government will be carrying out a review of its taxation policy if its financial targets are met this year. So far, this government has raised the tax burden without significantly raising taxes on labour and investment (while raising those on consumption and on activities that damage the environment). This (the choice of which specific taxes were raised not the fact that the overall tax burden was raised) has been one of the few important things that this government has got right so far. Let us hope that the review, if it comes, will lead to a reduction in income tax, particularly in the top band which, at 35% is still far too high. It must be remembered that this is the marginal tax rate for most workers and investors. So many of the additional economic activities that they undertake will be taxed at this rate. A policy of cutting the top rate of corporate and personal income tax has paid rich dividends for many of the EU's newest member states and it might help us break out of our current economic stagnation. It is sheer folly to punish people for undertaking those activities that you want to encourage for the sake of the economy's long-term health.