A Budget over the Cuckoo’s Nest | Mario de Marco

It is often remarked that the party in opposition has an automatic advantage over that in government, in the sense that it is free to criticise or make proposals of its own... without (immediately) having to put its money where its mouth is.

The Nationalist Party has certainly availed itself of both opportunities to the full. Describing Budget 2017 as a ‘budget without vision’, the Opposition has variously argued that the social measures do not go far enough... with shadow finance minister Mario de Marco adding that not enough was done to attract ‘new centres of economic activity’ to the island. 

The PN also published its own proposals in a number of documents leading up to the Budget. But this indirectly points towards an intrinsic problem that the Nationalist Opposition can’t seem to shake off.

Having occupied the government itself for so long until March 2013, one might legitimately ask why the former Nationalist administration never implemented any of its own proposals when it had the chance.

More specifically, some of these proposals have opened the PN to charges of ‘flip-flopping’. Only two weeks ago, Simon Busuttil was cautious about committing himself on the minimum wage. This week, he pledged to raise the minimum wage if elected. The following day, he suggested that the issue should be discussed first at the Malta Council for Economic and Social Development. 

So isn’t there some truth to the flip-flop criticism? PN deputy leader de Marco doesn’t think so.

“The issue at stake here is whether we want an economy that serves the people, or to accept a situation where economic interests of a few rule above all else,” he begins. “Up until last year’s budget, the Labour government was ridiculing anyone who dared suggest that the economic wealth being generated was not percolating to all levels of society. Despite clear warnings that society was splitting in two – the haves and have nots – the Labour government refused to admit that segments of society were facing increasing difficulties in making ends meet...”

The gap between the two is becoming wider as those on lower income are struggling with rising costs, especially food costs, he adds.

“It is indeed ironic that after only a couple of weeks from the presentation of the so called Social Budget, we have seen the formation of a coalition of no fewer than 14 organisations, proposing a gradual increase in the minimum wage. Their proposal merits consideration. This is what the PN is stating. It merits serious consideration because we cannot allow the current situation to persist. And by current situation, I refer of course to families being unable to live on their income...” 

Faced with mounting pressure, the government had to acknowledge this problem. “In all fairness, it did attempt to address it in this year’s budget. But the attempts fell short of expectations. This is not just the opinion of the Opposition. It has also been expressed by the Alliance of Pensioners’ Association, the GRTU and the Chamber of Commerce. The latter two focused their criticism particularly on the excise tax introduced in this budget on a number of essential items. This tax is going to hit hard on the lower income groups and increase costs on businesses, including SMEs...”

All this is well and good, but it doesn’t really address the issue of Busuttil’s U-turn on the minimum wage. De Marco however counters that it is the Muscat’s government that is flip-flopping on the issue. 

“On the one hand you have the Prime Minister now saying – after the Budget has been presented – that he is willing to consider raising the minimum wage. On the other hand you have Minister Scicluna stating sardonically, in his interview with you only last week, that ‘there is life without a minimum wage’; and that the imposition of a minimum wage is ‘a government intrusion’. Needless to say these mixed messages coming from the government make it evident that it is not only out of sync with the needs of ordinary families, but also out of sync within itself...” 

What are de Marco’s own views regarding the minimum wage? He mentioned the GRTU and the Chamber of Commerce earlier: both argue that it would dampen employers’ ability to remain competitive... 

“Wage costs are not the only costs that can affect competitiveness. The Malta Employers Association, GRTU and the Chamber of Commerce pointed out that the energy bills faced by enterprises in Malta are too high – indeed still amongst the highest in Europe – as is the cost of fuel. The introduction of levies on a wide range of products is also going to impact negatively on competitiveness.”

The Malta Developers Association, he points out, has also come out in favour of an increase to the minimum wage.

“A demotivated workforce will not do wonders to our ability to compete. And if we continue to move towards a situation where the income earned by segments of our population is not enough to meet the most basic of needs, then we are going to end up with just that: demotivation. So in reply to your question, I would say that we need to approach this discussion with an open mind and look at the bigger picture. That bigger picture includes making sure that our youth are trained to take on jobs that earn more than the minimum wage.”

Speaking of last week’s interview with the Finance Minister: he argued that rent control would be a government imposition, too. De Marco himself (unprompted) raised the issue of rental inflation as one of the issues affecting the social divide. So what is the PN’s proposal to mitigate property inflation? 

“The Opposition dealt with the issue of increase in rents and mortgages in its Pre-Budget document. Our construction and property industry is going through a boom period, which – while being good news for those who operate in this sector – is a problem for those wishing to buy or rent property. Families on lower income are more likely to rent than buy. However, they are now being faced with a situation where rents have doubled or even tripled over a short period of time. The government made the situation even worse last year by raising the rent of social housing properties. In our pre-budget document, we suggested two measures. The first was the reversal of the increase in social housing rents. The second was for the government to improve the rental subsidy scheme to help lower income families who rent from the private sector. The government included both these proposals in its budget. One needs to see whether the subsidy is going to be sufficient to meet the increase in rent...”

But on the issue of direct government intervention, de Marco finds himself in concord with the Labour government. “We do not agree with a policy of rent control in respect of privately owned properties. Government intervention of this nature will lead to inefficiencies and abuse. We would rather see mitigating measures aimed at helping those in need to make up for the inflation in rent and property prices, especially for first time buyers...”

So far, the focus has been on the social dimension of the budget. But what also emerges from Budget 2017 is a confirmed government policy to turn Malta into an economic base for the world’s highest-worth individuals. Meanwhile, in the PN document ‘An Economy For All’, Simon Busuttil is on record stating that he doesn’t want Malta to become ‘a playground for the rich.’ 

What does that mean, exactly? And wouldn’t it also be fair to say that Malta’s tax imputation system – which was inherited from past Naionalist governments, and which grants generous tax refunds on dividends to foreign shareholders – has already made Malta a playground for the rich? 

“Malta has evolved over the years into a reputable financial services jurisdiction. Our attractiveness in this regard, contrary to what many believe, is not based solely on our favourable tax regime; but also because we have a robust and efficient system that is capable of handling this delicate line of work at par with, if not better than, most other on-shore jurisdictions. I emphasise the word ‘on-shore’. We are not an offshore jurisdiction, and we are bound legally to act in the most transparent manner. As a party, even from the Opposition, we will fight with every means possible to defend an industry which was built over the past years with great foresight and against many odds. An industry which now accounts for over 12% of our GDP and directly employs over 10,000 people...”

However, de Marco denies that the reference to ‘playground for the rich’ was in any way related to the financial services industry. 

“Simon Busuttil was talking about an economy that values people on the basis of what they have to offer and not simply, on their net value. This remark has to be seen in the context of what is happening locally. We have a government that has put a price on Maltese citizenship. We have a government that is serving the rich and powerful, with flagrant disregard for the rights and expectations of our citizens. This is not just the opinion of the Nationalist Party. This is the written opinion of the Auditor General. We are seeing an economy that unfortunately, over the past three years, has shifted into dangerous territory, where nothing seems to happen unless there is a finger of government lurking somewhere in the pie...”

This establishes the PN’s critical opinion of the government’s economic strategy... but it tells us little about how the PN would administer the same sectors if it were in power today. What is the PN’s economic vision for Malta?

“We want to empower people. We want to create the right environment for ideas to flourish. We want to make sure that people are best prepared for tomorrow’s economy. This is what transformed Malta from an inward looking economy in the 1980s into an economy that can stand on its own two feet. We did this; and by ‘we’ I do not mean only the Nationalist administrations of the post-1987 era. I mean we as a country, together as a people...”

The government, he adds, has been regressive in this regard. “In its bid to appear pro-business, it is deciding who gets to do what. Consider this. Why was the government involved in the takeover of a private commercial bank by another private commercial bank? I can give other examples of course...”

One other example I can supply myself concerns the Paceville master plan: which has been criticised for proposing land reclamation and expropriation, mostly for commercial projects which will be undertaken by the private sector.  The PN’s response has so far highlighted potential conflicts of interest: but what is de Marco’s view of the project itself? 

“I do of course agree with co-ordinating large scale development through master plans or other tools. The question is whether this master plan, as proposed, offers the best solution. I think the public outcry and the government’s assertion that the plan is going to be changed, clearly show that the master plan fell way short of expectations. It failed to take into account the realities on the ground. It was described, I think quite effectively, as a desktop exercise which ended up running roughshod over certain realities: including, I must say, legal realities that can make its implementation virtually impossible....”

Among the more contentious issues is the expropriation of private property, which legally can only be done ‘in the national interest’. How can a project like this, which clearly serves private commercial interests, qualify as a ‘national project’ in that sense?

“Yes, this is in fact one of the legal minefields that the master plan chose to enter. There are others. I am not going to give my legal opinion on this matter, also because I think that you would rather have my political opinion. Transformation projects of this nature are very delicate. We are not talking about some green zone, but a densely packed area that combines an uneasy mixture of residential, commercial and leisure uses. The stakeholders should have been involved from the very beginning in this transformation process. This clearly did not happen. The legal means to achieve these shortcuts are highly questionable; the effectiveness of these means, even more so. If the government chooses to go down this route, it could very well end up with legal challenges that have the potential of delaying the whole development...” 

Turning to another PN criticism of Budget 2017: Mario de Marco recently said that the government needed to create ‘new economy centres’. What sort of new sectors did he have in mind? 

“Again, this is a topic that was covered in our pre-budget document. We can and should be doing more to attract new businesses that operate in the green, blue, digital and creative economic sectors. This government has nothing to show in terms of attracting new business ideas to Malta. Its economic vision seems to have been limited to selling citizenship, and turning Malta into a rock-bed for concrete blocks.

“Comparisons are odious, but one has to compare the dearth of ideas with what happened in the past when Malta managed to establish new channels of business. I am of course referring to the financial services, iGaming, aviation servicing sector, maritime and shipping services, logistics and other lucrative areas of work. So when the government boasts of its economic achievements, it reminds one of that cuckoo bird that lays its eggs in some other bird’s nest because it was unable to build its own.

“There is a danger to all this, because our economic sectors are not immune to challenges. We built new sectors to replace those that fell due to loss of competitiveness. We have to assume that some of the sectors we have today will not be around forever. Hence the need to attract new lines of business...”

One good reason to assume that the financial services sector may not be eternal is the fact that the European Union is actively considering a tax harmonisation proposal. Labour and PN are united in opposing this plan. Yet the declared intention behind tax harmonisation is to avoid internal competition when it comes to shopping around for favourable tax rates. Isn’t there a contradiction here? The PN criticises the government for turning Malta into a tax haven... yet opposes an EU measure aimed at eliminating tax havens....

“The Labour government has lost all credibility on the subject of tax jurisdiction. This is a serious consequence of the Panama Papers. The sooner the Prime Minister realises this, the sooner we can clean up our image. Transparency International said as much when it tweeted that Malta has to clean up its act before taking over the EU presidency. The Panama debacle has thrown an unwanted spotlight on Malta, and the Prime Minister’s handling of the situation limited our ability to fend off criticism. But fight we must; and fight we will, through solid arguments that show that onshore fiscal jurisdictions have served Europe well in the past. They are an intrinsic part of economic development and while there may be scope for fine tuning, it would be detrimental not just for some member states, but for the whole of Europe, if these jurisdictions are abolished. And incidentally, we are not a tax haven...”