Tonio Fenech: ‘Give economy time-out during coronavirus lockdown’

Former finance minister Tonio Fenech has suggested that the Maltese government implements an “economic time-out” during the economic shutdown that has been forced by the coronavirus pandemic.

As shops close down and a looming lockdown only around the corner, Fenech, a former Nationalist minister, says the Maltese economy should be preserved now so that it can be switched on again when the lockdown is over.

“This is akin to when time and score are frozen for a timeout or half time during a football match and the game is resumed with that same time and score when the referee whistles the resumption of the game,” Fenech said, writing in The Times.

During this time-out, the government would stop collecting all taxes while support measures are introduced to sustain employees, both Maltese and non-Maltese, as well as postponing water and electricity bills with no interest accruing.

“If we want our economy to restart from where it left off, then third country nationals must also be part of the solution. While the political temptation is to focus on Maltese/EU workers, there are serious repercussions if third country nationals are not included. If we want our economy to restart from where it left off, then third country nationals must also be part of the solution,” Fenech said.

Using legal measures, all loan repayments would be suspended and all interest accruing from such loans would be waived during this period. “Interest is to be forgone, not merely postponed as would happen in a moratorium. The loan repayment period is extended by as many months as the ‘time out’ period.”

This would also mean the Central Bank suspending the application of negative interest on the deposits held by banks. No loan call-ins would be allowed. “It is socially just that banks carry their share of the burden and are factually supportive during this crisis,” Fenech wrote.

Trading on the Malta Stock Exchange would be suspended, together with any bond repayments and maturities extended by as many months as the time-out period.

Rents too would be waived, and contracts automatically extended proportionately. “Support measures would be put in place for those for whom rents are their sole source of income,” Fenech said, but property owners will be prohibited from evicting tenants and the period of the suspension should end one month after the forced lockdown closure period to allow workers to receive their first pay.

All contracts, including promises of sale, would also be suspended and then restarted.

Fenech pointed out that small businesses in Malta, comprising over 80% of the economy, were not making huge profits, most of which is also reinvested in the business.

“It is wrong for the government to assume that these businesses have such deep pockets.

“I agree that employers should uphold a social responsibility and not lay off workers without seeking to offer some support, but this support can lead to bankruptcy or increased indebtedness, which may lead to a point of no return with jobs lost anyway,” Fenech said.

Fenech was finance minister during the 2008 crisis, when his government had to stave off mass lay-offs from production lines in Malta.

“What I found in the 2008 crisis is that if small businesses are given support to retain their workers, they would prefer not to declare redundancies, even if they must partially carry the burden. Maltese businesses have a sense of loyalty towards their employees and would not like to lose people they painstakingly trained and trusted.”

Fenech said the government should ‘credit’ national insurance contributions during the lockdown, rather than postpone them. “These would be recorded in pension records as paid for pension purposes, but businesses will not be required to collect NI from their employees and pay their share of the contribution to State coffers. This would be akin to when a parent goes on parental leave, for example.”

He also proposed a cut in salaries with wage subsidies: working parents earn 75% of their pay, in terms of Malta’s €20,000 average wage, with the government paying 50% of that wage, while employers pay 25% tax-free. “Public sector employees who are also not actively working should fall within this scheme, while public sector health workers in contact with COVID-19 cases should be receiving a special allowance of, say, 25 per cent over their pay for this period.”

Fenech said all other employees who cannot be actively working and who have no dependents will receive 50 per cent of their salary, with 25 per cent paid by the employer and 25 per cent by the government, also worked in terms of the average rather than the minimum wage. Employed parents who due to the lockdown are not in productive work and are sent home to take care of their children are compensated at a higher level then workers with no dependents.

“Given the other measures in place, their net income position will not be significantly impacted, thus receiving around €850 tax free and no rents or house loans to pay.”

Fenech also said the self-employed and landlords with shuttered businesses would have to be assisted in maintaining their families.

He said that in 2009, factories employed four- or three-day weeks with the government funding the other forgone day or two, also using the conversion of tax credits into cash grants to sustain investment during this period.

“There is obviously a public expenditure in these proposals that will exceed the €175 million the government has possibly budgeted for. I have tried to distribute this burden equally, however, the cost of an economic collapse will be much larger in terms of hardship than the costs of the interim measures the government needs to undertake.”