The Bud­get is a re­flec­tion of ro­bust eco­nomic per­for­mance but a longer term vi­sion is re­quired – MEA

The Malta Business Weekly - - NEWS -

Bud­get 2019 re­flects the rapid growth be­ing ex­pe­ri­enced by the Mal­tese econ­omy, at 6.7% in real terms in 2017, to­gether with a healthy state of gov­ern­ment fi­nances which have reg­is­tered a sur­plus over the past three years – 3.5% in 2018 and a pro­jec­tion of 1.9% in 2019 and a fall in pub­lic debt to less than 50% of GDP, a trend which is ex­pected to con­tinue in 2019.

The Bud­get has a num­ber of good mea­sures aimed at vul­ner­a­ble groups, most no­tably pensioners. It re­mains to be seen whether these mea­sures will im­prove the pur­chas­ing power and qual­ity of life of this grow­ing seg­ment. The Bud­get also seeks to spread a num­ber of fo­cused ben­e­fits that tar­get low in­come fam­i­lies.

Per­haps the Bud­get should have pro­jected a more con­crete vi­sion for a sus­tain­able econ­omy over a num­ber of years. The cur­rent pres­sure on wages, due to a shortage of nu­mer­ous skills in the labour force, to­gether with the cost of ad­di­tional op­tional leave days may re­sult in a wage price spi­ral as com­pa­nies will seek – where pos­si­ble – to shift the added costs on con­sumers both busi­ness and fi­nal con­sumers. Thus, in­creased in­fla­tion, pro­jected to in­crease to 1.9% in 2019, caused by cost push fac­tors car­ries the dan­ger of erod­ing prof­itabil­ity and com­pet­i­tive­ness, par­tic­u­larly in sec­tors which are price sen­si­tive, such as ex­port-ori­ented man­u­fac­tur­ing and tourism.

The MEA has also cau­tioned against growth which is the re­sult of a sud­den in­crease in pop­u­la­tion, adding that this re­quired a com­pre­hen­sive strategy to cater for the so­cio-eco­nomic im­pact of such a phe­nom­e­non, in­clud­ing in­vest­ment in the nec­es­sary phys­i­cal and so­cial in­fra­struc­ture to make such growth sus­tain­able.

The do­mes­tic labour mar­ket can gen­er­ate 3,000 jobs per an­num, but the de­mand for labour is in the re­gion of 11,000, thus the deficit can only be ad­dressed through the im­por­ta­tion of labour.

The one-day in­crease in op­tional leave will cer­tainly have an im­pact on pro­duc­tiv­ity and the As­so­ci­a­tion still be­lieves this was un­nec­es­sary, given that Malta al­ready has among the high­est num­ber of days of op­tional leave and pub­lic hol­i­days.

One weak­ness of the Bud­get is in­suf­fi­cient em­pha­sis on ed­u­ca­tion. We des­per­ately need to en­hance skills to in­crease out­put per capita, rather than in­creas­ing the labour force.

The mea­sure to add a waste to en­ergy plant is pos­i­tive, but may still be in­suf­fi­cient to cater for the in­creased waste gen­er­ated by in­dus­try and con­struc­tion. The As­so­ci­a­tion looks favourable at the set­ting up of TechMT as a con­sol­i­da­tion of dif­fer­ent ini­tia­tives to pro­mote in­no­va­tion and tech­nol­ogy and pro­mote Malta in for­eign mar­kets.

The Seed In­vest­ment Scheme and the idea of a Startup Visa can be a good ini­tia­tive to pro­mote en­trepreneur­ship.

On prop­erty and rent, the white pa­per on rent re­form, which was is­sued this week, com­ple­ments the Bud­get mea­sures, and while it does not guar­an­tee more af­ford­able prop­erty, lays the ground for a more reg­u­lated frame­work in which the sec­tor op­er­ates from which all stake­hold­ers can ben­e­fit.

The in­cen­tives to first time buy­ers and to buy­ers who are older than 40 years and the planned in­crease in the stock of so­cial hous­ing is a step in the right di­rec­tion.

The prom­ise to strengthen the reg­u­la­tory in­fra­struc­ture to im­prove gover­nance is com­mend­able to im­prove Malta’s in­ter­na­tional im­age.

Tourism will re­main one of the pil­lars of the econ­omy and per­haps it is time to fo­cus less on num­bers and more on at­tract­ing higher value tourists by im­prov­ing qual­ity of the prod­uct and the over­all ex­pe­ri­ence of vis­it­ing Malta.

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