INTERVIEW | Claudio Grech: COVID-19’s golden opportunity for socio-economic change

In May, the Nationalist Party issued proposals for a post-coronavirus economic recovery plan, based on a number of pillars. One of the proposals the party made is for “targeted, temporary and timely aid” to enterprises affected by the pandemic. In the coming days, the Prime Minister is expected to announce a COVID-19 budget worth millions of euro. What are the measures the PN would like to see included within this?

The PN’s recovery plan is based on a number of policy pillars. When devising these, one of the things we looked at is the fact that, in the short-term, enterprises which were affected by the coronavirus must be provided with temporary relief. Even if shops and other businesses are opening, this doesn’t mean that the effects of the crisis will vanish today. Therefore, assistance should not only be given to certain sectors while a substantial number of businesses – which received little or no help because they didn’t fall under the government’s Annex A, but under Annex B or in no applicable category – are left out. These enterprises are moving closer to a situation where their financial losses become unsustainable.

The PN, therefore, is proposing that enterprises whose cash flows or revenues were reduced by 50% or more due to COVID-19 – are given assistance. This has to be done irrespective of the economic sector these enterprises operate in, because there are businesses which, while they were not forced to close because of the coronavirus lockdown, their income was still very much impacted, and despite this, they are not getting any help from the government. This situation is leading to a substantial increase in unemployment as we go along.

With this in mind, our proposal for short-term relief is intended to provide targeted aid to companies which can materially prove that they have been impacted as a direct consequence of the crisis. We are not advocating government bailouts. If a government had been managed badly, independent from COVID-19, then this is a different matter. But for those businesses which were functioning properly and doing well before the pandemic but were then hit badly, we believe these should be helped. Needing particular attention are those enterprises whose business model will have to change because of the social distancing measures which are being mandated. Restaurants are a case in point – these are having to limit the number of patrons in their establishment. So, while the government allowed them to reopen, it must also ensure that they keep receiving help so that they can adapt and survive in this new reality.

The PN’s proposals, also focus on, amongst other aspects, the opportunity to seize the COVID-19 situation as a chance for economic change. In fact, the PN is highlighting that this is a good chance to transform what it says is Malta’s “broken economic model”. How can this be done?

The economic model employed by the government over the past years has been built on consumption. It is focused on increasing consumption structurally, through population growth, with statistics showing Malta’s population is rising. This approach was leading to economic growth, but the growth is not substantive because it isn’t focused on value added but on increasing the workforce through labour arbitrage – competing through low wages. We believe this is not the type of economy the country should focus on, because Malta is too small to support an increase in population and is already very densely populated. The Nationalist Party has always emphasised that economic growth has to be carried out through investing in economic sector which increase value added – those which don’t depend on how much land or space is used, but on how much the country is capable of generating more value using the limited space available.

Previous Nationalist governments did this through major investment in the financial services, gaming and technology industries. These took advantage of the fact that Malta is became an EU member with access to the European market of 500 million people, and also use technology to produce growth without this needing to require the use of physical space.

What we are saying is: Malta should take this opportunity to push towards a vision which isn’t only about economic growth but encapsulates the whole socio-economic dimension. The social and economic dimensions shouldn’t be split. In fact, the most advanced countries are moving towards an emphasis on liveability in their territory. They focus on how much their country is liveable for their citizens – not only how much the economy produces, but on the degree to which what is produced is done in such a way that society can live better. This includes investing in open areas, using as efficiently as possible the available space and limited land, how such land is developed, and other issues, such as environmental sustainability.

And the current situation is a golden opportunity to move in this direction. If we fall back on the system employed by the government of building the economy on consumption instead of value added, we will end up missing the opportunity. Economists are stressing that we need a socio-economic vision which takes the country in the right direction.

Another proposal the PN put forward is for the creation of social pact involving all the constituted bodies, social partners, civil society and political parties. How will this help the economy?

This fits in very well with the socio-economic vision we discussed. It is important to realise that we cannot look at the economy only in terms of statistics and figures, with the government boasting of economic growth while thousands are in poverty or at risk of poverty. We still have many people living in significantly substandard conditions.

What the PN is proposing that that, while we must look at how the country can reach its economic aims, such aims should not be the end itself, but a means to an end. As a country, we can continue building upon the existing social bond, where the Maltese are known for their strong degree of empathy and social consideration. This has to be given a renewed push so as to tie social concerns with economic aims. Issues such as living income, which has unfortunately not been discussed in recent years, come into place here. We are still a country which bases [living standards] on a minimum wage. Malta must think over and above this. Our aspiration should not be to provide the minimum for a person to live, but to ensure every level of society has jobs which allow them and their family to live a decent life.

Moreover, our aim should not be for competitiveness based on how many low wages the country can pay, but on how productive its enterprises can be. This is where the social pact comes in – it relates to how, on a socio-economic level, we can improve productivity in the country – how we can strengthen practices in sectors such as the digital economy. The social pact will enable us to bring together such elements and map out how, going forward, we can translate this into an increase in salaries, or how a family can live well with the income of the main breadwinner.

Crucially, it also related to the way in which the work-life balance which is often mentioned can be translated into not only a statement of intent, but into the way we function. Therefore, social and economic aspects must be tied together – both have to be considered in tandem.

The PN is proposing prioritising public spending, including by focusing on the strengthening of Malta’s infrastructure. Don’t you feel that increased spending on Malta’s infrastructure is already being done with the many investments in this regard?

God forbid if the government did not undertake this kind of investment. But we believe infrastructural investment should be done less haphazardly, and should follow a certain structure. We are pushing for the government to aim for a multi-annual framework of investment for infrastructure. This should not only include investment in roads, but all Malta’s principle network, to enable the island to aspire towards having an infrastructure which can compete with the most highly developed nations and cities.

In the end, competitivity doesn’t only come from low wage – we don’t advocate this. We want to advocate competitivity through creating an infrastructure which compares with the most advanced countries in the world – be it when it comes to our airport, sewage systems, underground structures, and so on.

Malta’s goals should not only be limited to opening a few new roads – we have to go beyond this. The government should prioritise an investment in the country’s complete infrastructure.

The Nationalist Party is underlining that EU funding should be positioned as a main means for economic recovery. The EU last week announced a post-COVID-19 recovery package through which Malta could get almost €1 billion in loans and grants. However, concerns have been raised that, to raise this money using the “own resources” mechanism, the EU might increase taxes in member states on digital services, which would impact Malta badly. What is the PN’s position on this?

Firstly, let’s acknowledge that Malta is in a position to obtain such funds because it is an EU member. Past Nationalist government negotiated two recorded EU funding packages for Malta, and although Labour has been in power for seven years, the country is still benefiting from the last package of funds negotiated under Lawrence Gonzi.

The coronavirus is a specific fund aimed at recovery and transformation – and this ties in to the economic transformation we spoke about. Therefore, we believe the package is very positive for Malta.

At the same time, it most definitely does not mean that we should in any way let go of any of our sovereignty when it comes to matters of taxation. I want to be categorical about this: the fact we can benefit from the fund should not mean we should reduce any of our sovereign power to decide on taxes.

Malta must therefore keep making its point about this issue, and, when it comes to negotiations on how the EU recovery package will be funded by member states, a lot will depend on our country’s credibility on issues such as fiscal evasion and money laundering. Unfortunately, in the last years, our standing on these issues has been compromised and complicated.