Malta's economy has improved so much as to be seen as one of the strongest within the EU. According to Professor Edward Scicluna, Minister of Finance, this happened mainly through widening the labour pool and offering incentives to women as well as foreign professionals. Additionally, Professor Scicluna speaks about policy objectives for the development of Malta's fiance sector, as well as points out challenges and initiatives the finance sector is facing including OECD's base erosion and profit shifting (BEPS) and the Common Consolidated Corporate Tax Base (CCCTB).
Malta has risen as one of the strongest economies in the EU. Could you give us a brief overview of the country’s headline economic indicators?
We have experienced phenomenal growth in recent years. In 2015, our GDP grew by a record 6.3%, the second highest in Europe. Unemployment is at a historical low, sitting at 5.4%, while we also recorded the highest employment growth in the EU for the third consecutive year. We cut income tax rates to make it more attractive for people to work, while offering incentives for more women to join, and for people reaching retirement age to remain in, the workforce. We are also on a gradual decline every year in terms of deficit, which dropped down to 1.5% of GDP in 2015.
What are the reasons for Malta’s exceptional economic performance?
Our priority was to stimulate growth. Economics and finance can be very complicated, but essentially they are quite simple. It is like baking a cake. If you want your cake to be big, you need to increase your ingredients, for instance human capital, skills and investment. So we widened our labour pool – also by offering incentives to women and foreign professionals to join Malta’s labour market – in addition to embarking on a dual strategy of controlling expenditure while assisting the business community to expand.
What have you set as the most important policy objectives for the development of Malta’s finance sector?
Malta’s finance sector has evolved considerably in recent years. The strength and stability of Malta’s financial services industry has been a particular positive. We have ensured strong regulatory measures are in place to minimise risk, and we are constantly adapting these in order to remain a stable and innovative jurisdiction. This is not about to change, and we always aim to do better. Once we reach a certain level, we endeavour to use it as a springboard for further growth. Malta today excels in professions such as law, IT and accounting. This helps us in attracting other high-calibre companies because they know they can tap into Malta’s expertise.
What challenges is Malta’s finance sector facing at the moment?
Success does not come without its drawbacks. Despite our efforts, at times companies have difficulties finding the right talent. With labour shortages, comes wage inflation, and this can have a negative effect on competitiveness. However, we are open for people coming from other EU countries, and increasingly from non-EU countries, as we have realised how important this is. We are also aware of competition. For instance, Portugal and Ireland have become more costcompetitive as a result of the recession and its aftermath. But we are not resting on our laurels, and are focusing on other important areas, such as reducing bureaucracy, to attract companies and capital.
How do you believe Malta’s finance sector should deal with, or react to, the changing global taxation landscape and initiatives such as OECD’s base erosion and profit shifting (BEPS) and the Common Consolidated Corporate Tax Base (CCCTB)?
We need to distinguish between anti-tax avoidance and tax harmonisation. We are against tax harmonisation, but we are in favour of anti-tax avoidance measures. Malta is no place for financial secrecy. We stand ready to work with any initiatives seeking to reduce tax avoidance by big companies. BEPS offers several ways of achieving this. However, the problem lies in shortcircuiting the solution of tax avoidance through tax harmonisation. Tax rates are a measure to stimulate growth and attract investment, and hence they should be set on a national level. Countries in the EU do not face the same economic realities, nor do they have the same resources. This is why we are not ready to accept a one-size-fitsall approach when it comes to taxation.