Gov­ern­ment has no prob­lem spend­ing more, but not where it mat­ters

PN Deputy Leader MARIO DE MARCO told Kevin Schem­bri Or­land in an in­ter­view that gov­ern­ment has no prob­lem with spend­ing, how­ever it does not spend where it ac­tu­ally mat­ters. Rev­enue is ris­ing, he said, but so is re­cur­rent ex­pen­di­ture. Dr de Marco was aske

Malta Independent - - BUDGET 2017 -

What did you think of the bud­get?

The bud­get tries to ad­dress a so­cial deficit which was be­ing felt and high­lighted by mem­bers of civil so­ci­ety. Not­with­stand­ing eco­nomic growth, the ef­fects were not be­ing felt by pen­sion­ers and low in­come earn­ers. The re­al­ity is that there are more than 90,000 peo­ple in Malta liv­ing in a state of poverty or ho are at risk of poverty.

The bud­get tries to go some way to try and put more dis­pos­able in­come in the pock­ets of pen­sion­ers and those on the min­i­mum wage. In our opin­ion how­ever, it does not go far enough to ad­dress these needs.

The bud­get to­tally ig­nores var­i­ous other chal­lenges this coun­try faces or could face in the near fu­ture. In our pre-bud­get doc­u­ment, we out­line a num­ber of chal­lenges we feel the coun­try needs to ad­dress.

Our fi­nan­cial ser­vices in­dus­try is un­der threat due to talks about tax har­mon­i­sa­tion and the fu­ture of our full im­pu­ta­tion sys­tem which is the cor­ner­stone to the suc­cess of our fi­nan­cial ser­vices sec­tor. While the im­por­tance of main­tain­ing our com­pet­i­tive fis­cal ad­van­tage is men­tioned in the bud­get doc­u­ment, noth­ing of sub­stance is men­tioned as to whether gov­ern­ment has a plan b and what the gov­ern­ment is re­ally do­ing to main­tain the sta­tus quo.

The level of ex­por­ta­tion to­day is still lower than it was in 2012. Our in­dus­trial pro­duc­tion has been con­stantly low, and that re­flects that our fac­to­ries are not pro­duc­ing and ex­port­ing enough. We need to see what we can do to make this in­dus­try more com­pet­i­tive. The GRTU, Cham­ber of Com­merce and the PN said that we need to lower en­ergy rates for in­dus­try. The 25% en­ergy re­duc­tion fol­low­ing the last elec­tion is still not at­trac­tive enough.

The re­duc­tion was not made due to the promised sec­ond power sta­tion, which is still not up and run­ning, but was ef­fec­tively made due to in­creased ef­fi­ciency of the BWSC power sta­tion which was sold off, the in­ter­con­nec­tor which en­abled gov­ern­ment to im­port more than 70% of our en­ergy needs at at­trac­tive prices, and the re­duc­tion in oil prices.

There are chal­lenges faced by the re­tail sec­tors. Not all re­tail out­lets are do­ing well and we have a num­ber of com­mer­cial cen­tres in ar­eas like Qormi and Ham­run fac­ing chal­lenges. In our pre-bud­get doc­u­ment we said that we need to help these ar­eas rein­vest and rein­vent them­selves. All these chal­lenges are not ad­dressed in the bud­get doc­u­ment.

We are sat­is­fied with record tourism num­bers, but ul­ti­mately this suc­cess is based on three cor­ner­stones – the prod­uct, ac­ces­si­bil­ity and mar­ket­ing. We re­gret to note that cap­i­tal ex­pen­di­ture in this sec­tor has not been in­creased and there is no real in­vest­ment in our tourism prod­uct. Look­ing at ma­jor projects, Fort St Elmo, Fort St An­gelo etc, these all started through EU funds in the last pe­riod dur­ing the pre­vi­ous ad­min­is­tra­tion. I am not see­ing any in­vest­ment in the tourism prod­uct.

Air Malta brings in some 45% of our tourists and the fu­ture of the air­line is still in ques­tion. All we know to date is that there are on­go­ing talks with Al­i­talia, which is los­ing half a mil­lion eu­ros a day. The le­git­i­mate ques­tion is whether Al­i­talia is the right strate­gic part­ner to save Air Malta. Is gov­ern­ment con­sid­er­ing a plan b? Why are the stake­hold­ers not be­ing con­sulted on this mat­ter?

Our con­cern is that there is very lit­tle vi­sion. Eco­nomic suc­cess is not solely based on do­ing what one has done bet­ter, you also need to look at new eco­nomic niches. The econ­omy of to­day is not the same as it was 10 years ago. A lot of suc­cess seen in pre­vi­ous ad­min­is­tra­tion was not based solely on strength­en­ing al­ready ex­ist­ing pil­lars, but by cre­at­ing new ones such as air­craft main­te­nance, the mar­itime sec­tor, iGam­ing and the fi­nan­cial ser­vices sec­tor. What are the new eco­nomic ac­tiv­i­ties for to­mor­row? What is gov­ern­ment’s vi­sion in this re­gard?

We have spo­ken about the mar­itime and lo­gis­tics hubs, the cre­ative in­dus­try, and in re­al­ity there is very lit­tle about all this other than what may have been re­peated from the pre­vi­ous year. Econ­omy Min­is­ter Chris Car­dona launched a re­quest for pro­pos­als on a lo­gis­tics hub a few weeks ago, fine, but we were talk­ing about this in the last bud­get.

Then there are the fi­nan­cial chal­lenges in this coun­try. Gov­ern­ment tried to savour the fact that the deficit is go­ing down, but ig­nores the in­creas­ing cur­rent ex-


Isn’t the deficit and debt ex­pected to go down?

It is, but the prob­lem is that while rev­enue is ris­ing, re­cur­rent ex­pen­di­ture is also ris­ing. Our re­cur­rent ex­pen­di­ture rose more than what was bud­geted, and the only way gov­ern­ment suc­ceeded in keep­ing the deficit level as they did this year, was by re­duc­ing cap­i­tal ex­pen­di­ture.

Re­cur­rent ex­pen­di­ture in the first seven months of this year was some €45 mil­lion above what was bud­geted. Our cap­i­tal ex­pen­di­ture was €12 mil­lion less than bud­geted. Gov­ern­ment re­cur­rent ex­pen­di­ture pro­jected for 2017, when com­pared with 2013, has spi­ralled up by some 30%, which in ab­so­lute fig­ures, amounts to hun­dreds of mil­lions. Gov­ern­ment has no qualms about spend­ing more, but not where it nec­es­sar­ily makes sense to spend. Cap­i­tal ex­pen­di­ture is the in­vest­ment used to im­prove in­fra­struc­ture and our prod­uct.

Couldn’t the de­crease in cap­i­tal ex­pen­di­ture be due to gov­ern­ment opt­ing for more pub­lic-pri­vate part­ner­ships?

No. They knew they were go­ing for PPPs. The part­ner­ships we are say­ing are in, for ex­am­ple, St Luke’s. The re­al­ity is that there is very lit­tle men­tion of in­fra­struc­ture projects other than the Kap­para junc­tion. What is gov­ern­ment se­ri­ously do­ing to ad­dress the traf­fic prob­lem? What have we heard about the traf­fic is­sue be­yond giv­ing per­sons turn­ing 18 the right to use pub­lic trans­port for free? Be­yond this we haven’t heard any ma­jor so­lu­tions and this is of con­cern, as the traf­fic prob­lem is not sim­ply a prob­lem for com­muters, or a mat­ter of frus­tra­tion, but it is also a prob­lem for our in­dus­try, for re­tail­ers, de­liv­ery vans and our at­trac­tive­ness as a tourist des­ti­na­tion. When tourists come to Malta they are coming to an is­land and the last thing you iden­tify an is­land with is grid­lock traf­fic.

The gov­ern­ment did come out with other pro­pos­als, such as in­cen­tives for em­ploy­ers to pro­vide free trans­port for em­ploy­ees. In your opin­ion, what more should have been done?

Last year we high­lighted the is­sue of school trans­port, and we need to in­cen­tivise par­ents to utilise school trans­porta­tion. We know that when school starts there is more traf­fic on roads. We also need to think about in­fras­truc­tural projects and car pool­ing ini­tia­tives. Yes while it is good to in­cen­tivise com­pa­nies, it is not enough. It is not an is­sue that can be tack­led from one day to the next, but at least we need to start plan­ning and all this is ab­so­lutely lack­ing in the bud­get.

Which mea­sures did you find pos­i­tive, and did you find any that would have a neg­a­tive ef­fect?

One pro­posal which we also put for­ward was to ex­empt pen­sion­ers from tax. If we want to en­sure pen­sion­ers have an ad­e­quate pen­sions with­out re­vis­ing the pen­sion is by mak­ing it tax free, thus giv­ing more in­come into the hands of pen­sion­ers. That pro­posal has been taken on-board al­though it’s been lim­ited to €13,000. It is quite high but if you are a cou­ple with €13,000 you still don’t get enough. There is also the is­sue that it is be­ing stag­gered over two years when the prob­lems are im­me­di­ate.

There is also a pro­posal on div­i­dends be­ing paid in the case of shares in listed com­pa­nies. They will be paid back. This was also one of our pro­pos­als and, as we know, elderly per­sons try to in­vest their money to re­ceive an in­come and this is a good way to help these peo­ple.

The trans­fer of busi­ness from one gen­er­a­tion to the next will be taxed less, which is also a good ini­tia­tive.

In terms of is­sues which are neg­a­tive, I would say there are two. The first is ex­cise duty on toi­letries, sham­poos etc. It will re­place the eco con­tri­bu­tion but we still need to see whether more will be paid at the end of the day or not.

The sec­ond is the fail­ure of the bud­get to re­duce en­ergy for in­dus­try and fuel prices. Ev­ery­one as­sumed that as the new power sta­tion is to kick off within a few months, gov­ern­ment would fi­nally be in a po­si­tion to im­ple­ment its pre-elec­tion en­ergy plan. In the elec­tion run-up, the Labour Party’s plan was not to re­duce tar­iffs due to the BWSC, the in­ter­con­nec­tor or fuel price drops, but, rather, as a re­sult of the new power sta­tion which they promised to de­liver within two years.

They had said clearly that in the first year they will fi­nance the cost re­duc­tion with the €30 mil­lion they said the se­lected con­sor­tium would have paid, and that they would have fi­nanced the sub­se­quent cost through the sav­ings which the new power sta­tion was meant to have pro­vided for. None of this took place in the first three years and as we are ap­proach­ing the fourth year, it may very well be that the new sta­tion would be up and run­ning, mean­ing that this would be the time for gov­ern­ment to im­ple­ment its prom­ise. What they did be­fore had noth­ing to do with the new sta­tion but had ev­ery­thing to do with in­vest­ments of the pre­vi­ous ad­min­is­tra­tion and lower fuel prices.

Gov­ern­ment never said it would de­crease en­ergy tar­iffs in this bud­get. If I am cor­rect this was orig­i­nally sug­gested by Dr Busut­til...

No that was sug­gested by the GRTU first, then by the Cham­ber of Com­merce and the Malta Em­ploy­ers As­so­ci­a­tion. There was a log­i­cal rea­son for the PN tak­ing it on-board. If you truly want to make the Mal­tese in­dus­try com­pet­i­tive, given the two-thirds re­duc­tion in fuel price and that the in­ter­con­nec­tor is of­fer­ing us low prices, that the BWSC has been proven to be ef­fi­cient, and that the gov­ern­ment saw so much po­ten­tial in the sec­ond power sta­tion, what will come in as a re­sult of it.

We sus­pect gov­ern­ment may have tied its hands with Elec­tro­gas as to the prices at which it would buy en­ergy and how much it would buy. We know this is for an 18-year pe­riod. The most im­por­tant thing in com­merce is flex­i­bil­ity and our ques­tion is, does gov­ern­ment have the flex­i­bil­ity to buy en­ergy from the cheap­est source or not?

If gov­ern­ment can buy en­ergy through the in­ter­con­nec­tor at a cheaper rate than what is of­fered by Elec­tro­gas, will gov­ern­ment be in a po­si­tion to do so or is gov­ern­ment com­mit­ted to buy en­ergy from Elec­tro­gas even if there is a cheaper al­ter­na­tive source? If that is the sit­u­a­tion, then ef­fec­tively gov­ern­ment has lost its flex­i­bil­ity of buy­ing en­ergy from the cheap­est pos­si­ble source.

Ul­ti­mately it should be a con­sumers’ world.

In­ter­na­tional oil prices have started go­ing up again, and the PN’s idea is to buy fuel on a day-to-day ba­sis. But gov­ern­ment’s ar­gu­ment is that by do­ing what it is do­ing, is al­low­ing busi­nesses to plan ahead...

Busi­nesses them­selves want flex­i­bil­ity. The GRTU rep­re­sent busi­ness and they dis­agree with gov­ern­ment’s ar­gu­ment, and I think you need to lis­ten to sources that un­der­stand busi­ness. If the Cham­ber of Com­merce is say­ing that they want flex­i­bil­ity, we should lis­ten to them as they know how to run busi­nesses.

Do you agree with the as­sess­ment that not much was done for the mid­dle­class?

I think the word mid­dle­class was ab­sent from the bud­get. This was meant to be a gov­ern­ment that prided it­self in ad­dress­ing the needs of the mid­dle­class and as­pir­ing to cre­ate a new mid­dle­class.

In re­al­ity while we saw re­duc­tion in tax­a­tion lev­els in pre­vi­ous bud­gets, these were only the im­ple­men­ta­tion of bud­get mea­sures that started tak­ing place un­der the pre­vi­ous ad­min­is­tra­tion.

I think that if a sec­re­tary, a teacher, a nurse or a pro­fes­sional were to look at this bud­get and say ‘what is in it for me’, the an­swer would be that there is noth­ing in this bud­get that ad­dresses their needs.

In your opin­ion what should have been in­cluded for the mid­dle­class?

If you look at their is­sues, they want to see more mea­sures re­lated to ed­u­ca­tion, more mea­sures re­lated to health. I think they would have liked more mea­sures re­lat­ing dis­cus­sions to the sec­ond pil­lar pen­sion. Dis­cus­sion on the sec­ond pil­lar is com­pletely ab­sent.

They would like to see more is­sues re­lat­ing to small busi­nesses, and trans­porta­tion. There is very lit­tle men­tion of bu­reau­cracy mat­ters when this is some­thing that small busi­nesses face.

The main prob­lem with the bud­get is the lack of vi­sion and the lack of ad­dress­ing the real chal­lenges, such as those of the self­em­ployed. In this coun­try the econ­omy is driven by SMEs, and what is in the bud­get for these peo­ple?

It was said that Malta will reach the half­way mark for its re­new­able en­ergy 2020 tar­gets. Do you think enough was in the bud­get to help push through to this tar­get and do you be­lieve Malta can achieve the tar­get?

I hope we do achieve it. So far we are heav­ily in­vest­ing in so­lar en­ergy and we are see­ing the first plans of so­lar farms. Ad­mit­tedly, is­sues with so­lar farms in Malta sur­round a del­i­cate bal­ance due to the small­ness of our size. We also know that part of the coun­try­side is Natura 2000 ar­eas, and what would the im­pact of such so­lar farms be. We need to in­cen­tivise more fac­to­ries to utilise their flat roofs. There are many in­dus­trial parks where I think we could do much more to utilise space and cli­mate.

The PN crit­i­cised the fact that there was no men­tion of the new power plant in the bud­get, yet this is a pri­vate pro­ject. What did the PN ex­pect to be said?

While it’s a pri­vate pro­ject, it is the re­sult of a gov­ern­ment call through an ex­pres­sion of in­ter­est. It is re­ally a gov­ern­ment pro­ject be­ing car­ried out by a pri­vate con­sor­tium, which has a pub­lic im­pact. Given that the fa­mous LNG tanker ar­rived lit­er­ally a week be­fore bud­get day, we would have ex­pected is­sues con­cern­ing the IPPC, the risk as­sess­ment etc to have been men­tioned and ad­dressed.

Within the en­ergy sec­tion I would have ex­pected it to be men­tioned given gov­ern­ment made it the cor­ner­stone of its elec­tion cam­paign.

What did you make of the pro­pos­als for Gozo, in­clud­ing the fast ferry ser­vice?

I think gov­ern­ment’s pro­pos­als for Gozo need to be taken with a pinch of salt. Last year they promised a yacht ma­rina, a cruise liner ter­mi­nal and oth­ers. We now have this fast ferry pro­posal which we also men­tioned in our pre-bud­get doc­u­ment. It needs to be im­ple­mented since com­mut­ing be­tween the is­lands is a prob­lem.

In terms of the tun­nel study, what has this gov­ern­ment said? It first launched the idea of a bridge which was ba­si­cally a non-starter and we wasted two years dis­cussing it. Fi­nally it re­alised that a bridge is non­sen­si­cal. Now we’ve gone back to the draw­ing board and are talk­ing about a tun­nel. A tun­nel will ad­dress the needs of com­muters, but we need to study the im­pli­ca­tions fur­ther.

I think the big­gest tongue in cheek state­ment re­gards the study on the de­vo­lu­tion of pow­ers to Gozo. This ad­min­is­tra­tion re­duced the pow­ers for the Min­is­ter for Gozo, ren­der­ing him, to a large de­gree, a mere head of depart­ment, with trans­port, ed­u­ca­tion and health out of his hands. What was left in the hands of the Min­istry for Gozo which is not al­ready in the hands of lo­cal coun­cils? We are all for de­volv­ing more pow­ers for Gozo and we have al­ways be­lieved that it should have more pow­ers al­lo­cated to it.

We are sat­is­fied with record tourism num­bers, but ul­ti­mately this suc­cess is based on three cor­ner­stones the prod­uct, ac­ces­si­bil­ity and mar­ket­ing

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