31 December 2003

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A year of the interview

Now with 2003 safely behind us, The Malta Financial and Business Times takes a look back and highlights a selection of interviews carried out over the year, which was by and large dominated by the business community looking forward toward Malta’s EU membership and competitiveness issues.

The way forward for industry
Upon his election as Federation of Industry President, Anton Borg spoke about a range of issues affecting Malta’s industrial sector, not least of which was, at the time, the EU membership question.
Asked how he sees Malta’s industrial sector competing as an EU member with fellow accession countries, many of which carry lower wage bills, production costs and have overland transport to the rest of the EC, Borg answers:
"Malta’s competitiveness has been under threat for many years and industry has been making an effort to overcome threats from wherever they came.
"The same situation will continue and our enterprises will have to continue with their efforts, whatever the outcome of the EU membership question.
"The increase in competition from Central and Eastern European countries which will become EU member states is a further challenge. Malta’s industry would be in a better position to face this challenge if the country takes the road to EU membership, as the countries of Central and Eastern Europe are doing."
Asked what aspects of EU membership concern the FOI most and in what respects he thinks Malta’s industrial sector stands to gain from accession, he replies:
"EU membership encompasses the whole economic and social life of the country. It is, therefore, intrinsically linked to industry. It affects its costs, its competitive behaviour, its relations with its employees and its relations with society – such as the environment and the sustainability of its development.
"Through EU membership the industrial sector stands to gain from access to new markets within the EU and to countries outside the EU with which there are bilateral trade treaties giving free access to products and services. The moment Malta signs on to the EU treaties it will also sign to participate in these trade agreements and our industry will become entitled to the same benefits.
"EU membership also means free entry into all member states for Malta’s processed food and beverage products. Industry stands to benefit from all EU programmes aimed at supporting SMEs in their efforts to grow, innovate and develop further. Part of the financial package negotiated by Government is aimed at assisting industry directly.
"Indirectly, industry will also stand to gain from infrastructure projects, especially those relating to the improvement of the environment. Without the financial assistance derived from EU membership, Government would need to raise financing for those same projects, which would mean higher taxation for industry and the workers it employs.
"Competitiveness remains at the top of our agenda. We have been saying, even in recent weeks, that the problems in the public sector need a solution – such as the overmanning in public corporations and certain government departments.
"There needs to be control on public expenditure if taxation levels are not to rise. There is the Social Welfare problem, which is also linked to taxation and public expenditure levels.
"Malta’s public debt needs to be brought under control if Malta is to take its place in the Economic and Monetary Union, while the Ports problem has also remained without solution.
"We want to see our economy stepping up its development tempo. What concrete plans have the main political parties prepared in their respects? Just like the rest of the country, we expect clear answers to these matters. Industry’s future depends on this. Workers will depend on this. The future of the whole economy depends on immediate solutions to these pending problems that hurt competitiveness."

Providing a catalyst for change
Former Economic Services Minister Josef Bonnici earlier this year spoke about EU membership’s impact on trade and industry and the recently launched National Industrial Policy.
Asked what aspects of the economy weigh most heavily on the government’s mind, Bonnici explains, "From an economic viewpoint one of the most crucial aspects is certainly investment. There is a good deal of investment taking place at the moment, partly as a result of the Business Promotion Act.
"What we are looking at is the issue of investment and how it would be negatively affected if Malta remains out of the European Union. There is no doubt that the reaction from investors to such a development would be negative, especially from those in the manufacturing sector.
“The way in which many companies are structured today means that their input originates from so many places that the conditions under which one operates as an EU member are much easier to operate in than if one stays outside.
"So if you’re building a car, as in this example, and you need to receive some parts from the EU and others from outside the EU, it’s a definite disadvantage to not be an EU member.
"Apart from this crucial aspect, there is, of course, the question of security in terms of forming part of a bigger block with known rules and known conditions, which together create a known environment for potential investors.
"The large amount of bilateral agreements the EU has signed with countries outside the trade block is another crucial aspect.
"If you take a country like Malta with close to 400,000 people and a country with millions such as Egypt, Algeria or Tunisia, our market is so small to these countries that their priority lies in the bigger markets that can have an impact on their activity levels.
"If one looks at the manufacturing sector there is no doubt that the superiority of being an EU member is clear and could be so critical for our future development. This is evident in terms of the upgrading of our industry, in being able to attract new investment and in retaining the investment we have attracted.
"A lot of investment has adopted a wait and see attitude. This is because as an EU member Malta’s attractiveness is higher, while as a non-EU member it could very well be that such investors would be reluctant to invest as quite much or that they might go elsewhere."

Tax holidays and achievable targets
Former Labour Finance spokesperson Leo Brincat speaks about tax collection in the wake of the party’s now defunct tax holiday proposal:
"We think the biggest shortcoming of the government in terms of ordinary revenue is tax collection. If one sees the report of the auditor general, we realise the amount of overwritten taxes being at circa Lm47 million written off and around Lm400 million that are still due. If there is a serious effort, by any government, to recover those funds, that already is an adequate measure.
"I don’t think the tax break should be seen in total isolation," Leo Brincat says, "We are being prudent in what we promise. Our first priority is not to increase the tax burden, but actually easing it.
"We are placing emphasis on tax collection. This government had a certain measure of success in tax collection. When Minister Dalli consulted us on the creation of the Tax Compliance Unit, we had shown our reservations that this was going to be a semi-autonomous unit easily manipulated and misused by politicians.
"Our view is that throughout the legislation, we should explore the possibility of having the TCU being gradually channelled into the Inland Revenue, the latter having a more investigative role. This would create one main source that would provide access to information on individuals with regards to national insurance contributions, VAT, income tax and other taxes.
"However, when we discussed this with the then-Shadow Finance spokesman John Dalli during the Labour government, he pointed out that too much information sharing could send a wrong signal to prospective investors, when considering our financial services and double taxation agreements.
"Today, since the element of secrecy has been eliminated from government, I see Inland Revenue assuming the roles of the TCU, with some legal modifications. The TCU has unfortunately developed too much as a ‘state within a state’. We have had reports indicating the application of ‘two ways, two measures’ and a stalling of activity in the run-up to the elections. We also feel that certain fat cats are not being investigated. Government has the priority to emphasise primarily on those people with certain lifestyles and living beyond their means.
“The tax holiday was also extended to the agricultural sector, with a very generous exemption from five to ten years. The PN screamed ‘opportunism’, the criminality of a pre-election titbit aimed to satisfy the disgruntled voters."


Continues on page 2

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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