29 June 2005

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The Labour Party delegates tomorrow will start meeting to discuss an economic and social regeneration plan that has been cooking for almost 10 months. Deputy leader Charles Mangion, the man who steered the discussions that led to the formulation of the final document, insists the plan was not intended to be an election manifesto.
He defends its lack of detail saying the party would proceed to the second phase of the project by drafting individual documents outlining detailed proposals for each and every sector and issue.
This document provides a broad vision of where the Labour Party intends going, Mangion says. He insists it will provide the groundwork for a political manifesto which will contain realistic promises intended to better the quality of life.

The newer version of the economic and social regeneration plan is bereft of detail. Why wait for the electoral programme to be drawn up on the eve of an election to announce the details?
The document is timed to coincide with Government’s mid-term. Given the prevailing economic situation we need to have a plan that addresses the macro-economic problems and this is the idea behind this document. It provides a broad vision of what we intend to do.
The second phase would be to draw up particular proposals for the various sectors based on the general outlines provided by this plan. From now until the next election three years down the line we will be working to create detailed plans for education, tourism, incentives to attract more women into the labour market and so on.

Competitiveness is a constant theme throughout the document. But can the country gain its competitiveness without impinging on wages, leave entitlement, general employment conditions and without asking employees to make sacrifices?
Yes, the country can regain competitiveness without eroding working conditions. If we look at wage levels in our country we compete well with other EU countries in terms of competitiveness. In the document we referred to countries such as Denmark and Finland where employees have high wages and social welfare is very generous. Despite these conditions these counties are competitive. How have they become competitive?
It is obvious those sectors that are labour intensive rather than provide value added need to be phased out gradually. We therefore have to focus on the skill level of our workers because we are lacking in this aspect. We need to focus on long term programmes to entice more of our primary and secondary school pupils to take up science subjects, be innovative and obtain technical skills. The education system has to be reformed and that is what countries like Denmark and Finland have done because such long term planning has provided them with the necessary human resources to engage in value added research and development activities.
Secondly we need to take a deep look at bureaucracy and the service offered by public entities. Sometimes, tariffs are raised to cover up inefficiencies, further compounding the problem caused by Government-induced costs.
In a small economy like ours it is natural to have certain monopolies, whether State or private and this necessitates a strong competition law and pro-active regulators. We have to consider introducing administrative sanctions where abuse of market share results.
The other aspect is the reluctance of the banking sector to provide venture capital, seed capital and similar funds to help business start-ups. The banks probably perceive a negative economic climate and hold back from investing with private investors. We have to facilitate such initiatives and that is why Government has to retain its shareholding in Bank of Valletta.

The document speaks of rationalisation of the various authorities and Government departments. Which are those authorities or departments a future Labour government would dismantle or merge?
The over-lapping of competencies between some authorities and departments has to stop so that people making use of the services offered by these same authorities will not have to go from one department to another to obtain a licence or a service.
When rationalisation or mergers occur between different authorities we will probably have to deal with the situation of excessive employees. In no way is the Labour Party proposing that extra employees be made redundant. That would be madness. They will have to be absorbed by the general public service over a long term.

But how will you go about this rationalisation exercise?
I am looking at things from the outside today but if I can amalgamate two or three authorities and entities I would do that. At the moment Government is undergoing a similar exercise with a unit in the Office of the Prime Minister evaluating the work done by each authority, its cost structure and so on.
But once the Labour Party is in a position to do something about the situation we would need to study the circumstances prevalent at the time and act swiftly to implement change.

The document also speaks of accountability and personal responsibility for public officials. What does this mean?
In the private sector every manager and chief executive shoulders responsibility for every decision taken. This is what we have to aim for, a cultural change in the public sector. Government had legislated for a corporate structure with top civil servants benefiting from bonuses if targets are met. We have to enforce such a system. If we have non-performance, or an over run in expenditure or a particular project is falling behind schedule, someone has to shoulder responsibility. Ultimately it is the politician who carries the can but we have to understand that every civil servant from the permanent secretary down has to be responsible for his actions.
And accountability has to start from the top because it is not fair to use people in the lower rungs as scapegoats.

As regards privatisation the MLP’s plan states that it shouldn’t occur in those entities deemed strategic for the country’s economic development. Which are the strategic entities?
Entities such as Air Malta and Sea Malta, in the context of a small island state where a stable and guaranteed communication link to the outside world is of vital importance, are strategic even if they are operating at a cost. Such a cost is a social cost that would have to be borne.
In the banking sector, should government lose its remaining influence in Bank of Valletta, which can be used to advance Government economic policy?
We have to keep in mind our small island status and cannot compare ourselves to the US.
Water and electricity are two other entities offering strategic services and should not be privatised.

In the case of Sea Malta, Government wants to privatise and secure the strategic element by binding the buyer with a public service obligation. Isn’t this another model of how privatisation should occur in strategic companies?
The private operator’s main aim is to maximise profit. If a particular route makes no financial sense either Government would have to increase the financial allocation to finance the public service agreement or else the private company can simply cease to operate the route.
The money Government will still fork out for the public service obligation had better been invested into Sea Malta to help the company reorganise and turnaround.
Many a times the interests of private industry do not tally with those of the public.

The document speaks on the need to curb tax evasion. That is precisely what the Inland Revenue department and the Tax Compliance Unit are doing at the moment but operators complain that Government’s relentless drive to collect taxes has squeezed every cent out of the economy, and is causing a cash flow problem. Where do you draw a line between justice and pragmatism?
We have to determine what Government’s real arrears are because the Auditor General more often than not basis his figures on estimates. What may appear as a back log of Lm120 million will in reality translate into arrears amounting to around Lm40 million. Things have to be put into perspective.
Employees are very easily traceable and cannot escape paying the tax due from them. It is in the second category where the authorities have to rely on a self-assessment made by the individual that much more can be done.
With all the data available Government can easily create a system of benchmarking. Amicable solutions can be found with those suspected of reaching the benchmark.

The plan states that fiscal incentives should not be the main reason why foreign direct investment should come to Malta. How do you equate this statement with the opposite drive in Eastern Europe where countries are heading for a single flat rate tax system in order to attract FDI?
We have to keep in mind that our social services offer a wider safety net than the prevalent situation in most Eastern European countries. Furthermore, the way multinational companies are structured today means they could easily indulge in cross-pricing to declare their profits elsewhere despite operating in a particular market. In this situation it makes more sense to have as many double taxation agreements with other countries, something which we lack at the moment. Suffice to say that we suffer because of no such bilateral agreement with the US.
But investors do not only look at taxation when deciding which country to choose for relocating or setting up of their operation. There are other factors such as infrastructure, human resources availability, the language, the general living conditions in the country and industrial relations harmony.
If we intend attracting companies in the research and development field they will increasingly demand strong patent laws and similar legal instruments to protect intellectual property rights.

The Labour Party often criticises Government for increasing taxation over recent years. But the document fails to outline which taxes and by how much a prospective Labour Government would reduce them.
We have to assess and determine the true extent of Government’s deficit. A Labour Government will adopt a system of accrual accounting and I am convinced it will reveal a much worse situation than what is being portrayed now.
What is worrying is that despite an increase in taxation, Government has collected less money from income tax and social security contributions for the first five months of the year indicating a retraction in the economy.
We must first do our utmost to stimulate economic growth and then one can consider lowering taxation. Between 1996 and 1998 we had lowered the sales tax on tourism and this immediately had a positive impact. But at the same time that Government reduces taxation, it has to focus on collecting every cent due.

Will the details regarding tax cuts come before the general election or after?
Many of the details, as far as is possible with the available data at hand, will be included in the electoral programme.
The plan argues for fiscal incentives to encourage more property owners to put their vacant dwellings on the rental market. How does this guarantee that vacant dwellings are actually put up for rent? Won’t this work only if a vacant property tax is introduced as suggested by the original document published last year?
We need to have a clearer picture of the status of the 26,000 or so inactive properties. Most of these, especially in the Valletta, Floriana and Cottonera areas are kept vacant because of disputes between various co-owners. There is a veritable difficulty to acquire title in these cases and as a consequence the property is left vacant. This has been slightly addressed with the Civil Code amendments last April.
But there is a bigger difficulty because until today the Maltese consumer prefers outright purchase to renting as long as the monthly rent payment is equivalent to the monthly bank loan repayment. This mentality is passed on from one generation to another and if I were to give my children advice I would suggest they buy rather than rent.
A rental market is however important to cater for family units such as single parents who would not be able to afford a loan.
Despite the 1995 amendments that liberalised the rental market, property owners are still reluctant to rent because they fear lengthy court cases if tenants refuse to honour rental contracts. We have to find a means of making enforcement viable because as things stand with administrative delays to deliver justice, the 1995 rent laws are practically a dead letter. It might make sense to register rental contracts and give them the same weight as other public contracts, giving landlords greater piece of mind.
Once we have these requisites in place the rental market will hopefully flourish.

The original document had suggested a coupon system for working mums wanting to utilise child care facilities. In the new version this suggestion has been removed. Why?
It is not a re-think of policy. We have reiterated our commitment to encourage more women to enter the labour market while valuing their maternity. The coupon system was just a suggestion. We will have to draft a detailed manifesto of concrete proposals to put into practice our commitment.

Will a Labour government consider extending paid maternity leave to six months like in Denmark and Germany?
Any social advancement is positive but we also have to be realistic in what we propose. We have to ask ourselves whether the country can afford certain measures. It would be the easiest option for me to promise an increase in the minimum wage or similar social measures but will it be realistic for me to make such a promise?
We have to focus on creating wealth first and then it would be up to a Labour Government to ensure a fair redistribution of it.

On the eve of the local elections the Nationalist Party had come down like a tonne of bricks on the MLP over the various controversial proposals such as the removal of the bonus and the introduction of a vacant property tax included in the original economic and social regeneration plan. Is the new document a reaction to the PN’s criticism since all the controversial issues have been removed?
This confirms what we had said when we launched the document in August last year that the report was prepared by a group of technical people for the evaluation of the party. It was intended to create a discussion platform for the eventual drawing up of a document to be presented to the party delegates. After careful analysis of the technical proposals such as those you mentioned we felt that the final aim they intended to achieve wouldn’t have been reached.
The proposal to remove the bonus and transfer it into a social fund was intended to help families in need. But a careful analysis also shows that there are families who need the bonus to boost their income. We have now come up with a proposal similar to the otto per mille scheme in Italy whereby individuals can contribute up to 0.8 per cent of their income tax due to a social assistance fund.
In evaluating the suggested property tax, we felt it would contribute to further increase the price of property and that would be undesirable.

Will the next election be fought on which political party is a better manager of public finances and the economy? Will there be space for ideology?
Our ideology is the one that has characterised the Malta Labour Party since its inception. We want to act as a catalyst to create wealth but we also have to ensure that it is fairly redistributed in society by making sure that those on the lower rungs of society are helped up. We also believe in empowering people and that is why the emphasis on education because better educated people can move ahead.
The people are asking us to focus on bread and butter issues and the Labour Party wants to convince the electorate it can offer this country a better quality of life and a better future in the context of a globalised economy and Malta as a member of the European Union.

Charles Mangion was
interviewed by Kurt Sansone

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