Opinion COVID-19 Economic recovery plan

This Briefing Note is grounded in the overall setting that these are extremely difficult circumstances and the unprecedented land

scape calls for enormous responsibility on all the political stakeholders to set

aside party lines and place at the centre of our actions the main concern that is emerging: the potential erosion of the social bond we have so painstakingly built and strongly nurtured over the years. As political front-liners we need to realise that this scenario may lead to thousands of businesses towards failure beyond return, leading to mass unemployment, wholesale lending defaulting and a sharp dilution of fiscal discipline which will take at least another decade to gradually reinstate. Hence, our response needs to be sound but reasonable.

The incentives rolled out by Government in the third package, were generally positively accepted by those that benefited on the highest band (Annex A).

However, there are three clear pockets of

main concerns with the current approach adopted by Government, namely:

a. The fact that enterprises employing (in aggregate) a workforce of nearly 100,000 employees have not benefited from any material aid from the schemes. b. The unfettered discretion applied by government on who to accept or not beyond what is published in Annexes A and B. c. The administrative time lag in the receipt of funds for many enterprises, leading to serious liquidity issues at both enterprise and employee-levels.

The wider industry view of these incentives is also reflected in survey-based reports conducted by the Chamber of Commerce and the Chamber of SMEs.

The former reports that only 11% consider the measures to be adequate, with 51% considering them to be partially adequate and 39% either inadequate or completely inadequate. The same result was echoed in the

Chamber of SMEs with only 12% rating the level of government support 4 and above on a scale of 5.

As the economic effect of the Covid-19 crisis unraveled, the somewhat tenuous fabric

of the economic model built over the last years has been exposed. The mis

placed aura of a bullet-proof economy, dissipated in thin air in a blink of an eye. It was baffling to witness the undoing of so many enterprises in a matter of weeks, clearly pointing towards a stark lack of sustainability and a series of inadequacies. This was severely compounded by a myopic attitude towards risk which mutated into hubris generally muting business prudence. Insufficient liquidity, diversion of funds into non-core property fuelled by speculation, lack of business planning, absent governance and over-trading, were prevailing traits, just to mention a few. This was the result of an economy fuelled by consumption and volumes designed for the moment, rather than one shaped to build a better future for the next generations. Compounding this further is the increasing complexity and time involved in banks considering and approving facilities for enterprise due to incremental regulatory restrictions.

This state of affairs is further accentu

ated by the absence of an economic vision and strategy for Malta. Over the last

years, the country has been crying out for the shaping of a clear goal towards which all the stakeholders could aspire to. With the exception of the highly damaging IIP scheme, the government did not succeed in creating a single new economic sector in seven years. Until the economy was thriving on consumption, this systemic malaise could be somewhat masked but now that the real economic fabric has been laid bare, this lack of vision is yet another hurdle to be overcome in the path towards recovery.

It is also pertinent to point out that, despite some distancing measures having been relaxed in the non-essential retail and the restaurant sectors, the unplanned fashion of

how this was handled, the confusing messages, the nature of the protocols and the wider consumer confidence levels are leading to an increase in operating losses and a further dent in the viability

of the respective businesses. This is even more accentuated in case of self-employed. The sharp drop in revenues (due to dampened demand) will drive businesses into recurring losses, which will be the case of self-employed. The sharp drop in revenues (due to dampened temporarily nursed by the lighter approach towards bank financing (and the deferral of tax payments) only to face steeper repayment challenges in 6-12 months, after any moratorium periods draw to an end. The bottom line is that opening up without a proper plan (and commensurate support) will simply lead to more losses, particularly in the (anticipated) event that Government will match the relaxation of measures with the withdrawal of the wage supplement to the impacted sectors.

In essence, when considering the shaping of our policy options and in our pursuit to identify the right policy mix, we also need to enshrine our overall commitment towards the common good, which is a basilar but complex notion in these circumstances. The effort needed to weather this storm and start crawling back is of unprecedented magnitude. The key challenging point here is to carve out the optimal approach towards our proposals which will help in protecting life whilst safeguarding the livelihoods of our families. We can never place the economy before human life but we need to do this in a way which doesn’t put into jeopardy the wider socioeconomic imperatives which enable us to protect and preserve life in the first place through the funding of our healthcare system which, in the first place, is only possible due to the economic activity generating fiscal income for the State.

Losing the focus on the bigger picture of the common good will simply bring us back to the current quagmire of looking at the economy as an end in itself rather than a means to an end. In this re

gard these are some of the primary policy questions we need to constantly probe when shaping our agenda: a. Employees and their families are asking themselves if they will have a job and if their job will still give them the same level of disposable income to allow them to sustain their quality of life. Moreover, working parents are asking if schools will reopen and if childcare centres will be providing similar services to enable them to get back to work. Of greater concern are those who lost their job, asking if the heightened level of unemployment benefit will be sustained over a longer period of time until they will be able to find alternative employment, even if at a lower pay. Equally, foreign workers (particularly those with dependents locally) are anxious to witness the twilight on the horizon of their employment in Malta: a country which first lured them and then pushed them out, at the first hurdle. b. Businesses are trying to foresee if they can make ends meet in the trough of the crisis, hoping for a rapid turnaround of the situation. They ask themselves if it is wise to borrow money to manage the liquidity shortfalls and if this will be addressable in the financial years to come. Being optimist by nature, the local businessman will try to see the opportunity in the storm but fundamentally they question whether demand for their products/services will be sufficient to generate a baseline of revenue to cover the basic operational costs, particularly in the absence of the wage supplement. c. Investors, particularly senior citizens who

hold bonds and stocks, are anxious on the degree to which their investments and savings are protected and to what extent they will be receiving their income stream, going forward. d. Whilst striving to bridge the liquidity gap, banks are increasingly cautious on whether their clients will be able to service the current lending facilities and the additional loans being extended, nervous in their attempt to safeguard the financial stability they have painstakingly built over the last decade following the financial meltdown. e. Government and political stakeholders have a tall order on their agenda, balancing public health with economic survival, savings lives and jobs at the same time. Apart from the obvious fiscal gaping hole that the crisis will leave behind due to lower fiscal income and higher relief outlay, the questions asked are on how human development is also being affected with the material mental health impacts , spikes in domestic violence, collapse of the educational system and the inevitable escalation of criminal activity.

OUR APPROACH: NOT OPPOSING FOR THE SAKE OF OPPOSITION

In the light of the foregoing principal concerns stemming from our common good perspective, as an Opposition we have a duty

to actively participate in the recovery process, putting forward our best talent,

ideas, recommendations and providing overall support to the stakeholders to improve the management of this crisis, irrespectively of party lines. As explained above, the economic challenges will not come to an end when the measures will be relaxed. To the contrary, it is anticipated that many businesses will go through a very difficult period largely due to the mismatch between the drop in revenues and the same level of recurring operating costs. The potential social and economic domino effects are of a worrying magnitude.

In these challenging circumstances, we need to rise above petty partisanship and put forward an approach wherein we do not oppose for the sake of opposition but rather we contribute our best efforts and ideas in the interest of our nation. We are fully cognizant that Government has not been particularly forthcoming in roping in the Opposition but, at this juncture, I believe that this is secondary. His

tory will judge the PN by the decisions and stances we take in these challenging times. This has also been the approach

adopted by the Leader of the Opposition from day 1 of the emergence of the crisis, when he had offered structured assistance to the Government, to be flatly turned down at the outset.

In this regard, after seeking direction from the Leader of the Opposition, I have accepted the request of the Minister for the Economy

to provide the necessary input from the Opposition with respect to the recovery plan and measures to be adopted, with

our approach being subject to the process being a meaningful one and that it is a structured and comprehensive one, bringing on board also the constituted bodies and social partners.

Moreover, it is being proposed that a

crossparty Task Force be set up possibly as a

Parliamentary Committee

in which all major stakeholders would have an active participatory role, seeking to converge all efforts in a common direction, hence sending a strong signal to society that the measures being contemplated are truly and comprehensively representative.

Rather than engaging in populist stances, we need to clearly steer towards convincing all those involved that we should be shaping a viable economic recovery which is structured, transparent and open to all stakeholders. This as opposed to the current bite-sized policy approach which obviates any potential commercial planning by enterprise, hence exacerbating further the impact of the uncertainty that is prevailing in the current landscape. In this regard, the Opposition’s engagement in this process will be shaped by: a. A set of headline policy pillars, establishing the key policy criteria on the basis of which the government measures are to be structured. b. A composite of measures intended to prime the transformation and restructuring of our economy into a strong recovery and not one which is merely cosmetic and tactical.

At a very high-level, our approach is being driven by an overall impetus to seek to utilise the fiscal latitude allowed in this period to

make enterprises more efficient, transform themselves and become capable to grow further in a post-Covid economy

with government support directed to help them in making the necessary investments, enhancing their prospects going forward and hence providing the best safeguards possible for the highest degree of job retention and expansion of employment.

Specifically, it is being proposed that when carving out the economic recovery from the Covid-19 crisis we widen our scope to the bigger picture in a manner that taxpayers’ money would be channeled to strengthen the basis of our economy and not merely seeking to fix bullet holes with a band-aid. In this regard,

our over-arching objective to safeguard the livelihoods of our citizens will be complemented by the following set of strategic priorities which will guide the

policy-shaping efforts of the Opposition: a. Provide the necessary level of support and

relief to those materially impacted. b. Address root causes of people being pushed into poverty in the aftermath of the Covid19 crisis. c. Translate recovery into progress and economic transformation, shaping an economic vision and strategy in the process. d. Entrench sustainable development in a liveable Malta as an integral part of the strategic effort. e. Reinstate fiscal discipline within an equi

table tax burden. f. Prioritising public spending for the genera

tion of economic valueadded.

To be continued Next: 10 policy pillars