News & Events

Malta News - 27/03/2020

Job solidarity helps combat the corona curse

Author: George Mangion
Published on Malta BusinessToday 26th March 2020

No wonder the evening news is so depressing when it reports new growth in local corona victims and the additional number tested each day.

Globally, more than 341, 300 declared cases of COVID-19 have been registered in 174 countries and territories while countries are starting to coordinate to help each other fight the virus. We saw how Cuba and China have sent doctors to Italy, while some Italian patients have been transferred to hospitals in Germany. Russia has also flown nine military aircraft loaded with trained doctors and supplies to help the severe outbreak in Italy.

The message is loud and clear: the virus is spreading across continents and we shall witness a cascading amount of laid-off workers(mostly low income earning migrants) who, if they are of third country origin, have a miserable 10 days to leave the island.

With everyone encouraged to stay inside and only shops related to food and medicine allowed to open, we are in a practical lockdown.

Considering the evolution of the pandemic in Malta, a total lockdown at some point is inevitable. In effect, the country is paralysed, particularly the hotel and travel industry, which is  reeling under the strain of zero business .

No wonder layoffs are expected when  the media is reporting that the car hire industry has more than 7, 000 vehicles lying idle and another 700 brand new ones that have just been imported but are still unlicensed due to the COVID-19 pandemic.

at the same time, thousands of white collar workers cocooned at home (occasionally both husband and wife plus children) trying their best to work offline.

It is amazing how the golden years of Muscat’s seven year spree of “L-Aqwa Zmien” has vanished into thin air and rumours are starting to surface that the state coffers are not over brimming with tax revenue.

Yet, official statistics record how, thanks to Muscat ‘s administration, the economy had turned the tables with a feel good factor that saw the nation throwing caution to the wind.

Then, the island’s economy is the envy of all Eurozone members. Up to last Christmas, party apologists waxed lyrical about the low unemployment and enhanced welfare handouts with a topping up of the minimum wage.

The feeling was that the poverty level was being reduced such that only about 3, 000 workers were on minimum wage and that those enjoy top-ups and in-work benefits.

The common notion was that families earning €800 monthly were considered close to the poverty trap.

The mini-budget as revised by the prime minister was based on cash subsidies to firms resisting layoffs based on minimum wage rates.

He said tourism will suffer a loss of €2 billion adding that Malta would ‘be lucky’ to see tourists by December 2020. This is a sector which will be the hardest hit and whose fall-out will affect 110, 000 workers, almost a quarter of the population.

In fact, even migrants who paid social security or were in regular employment were still unsure whether they qualify for the support and employment measures announced by the government in recent days.

The government is encouraged to consider increasing the support granted to micro-businesses that employ less than three people, who in effect may not even be able to support the minimum balance on pay (after subsidy) to their employees and also sustain their own families.

According to the Chamber of SME’s,  employers are trying to mitigate the situation by giving forced leave to full-timers. They are also switching their focus to introducing innovative delivery services in order to remain in operation, through dedicated mobile applications in conjunction with taxi companies.

They complained that the aid packages issued last week did not go far enough. Businesses and unions complained that the bulk of the €1.8 billion allocated by the government was in the form of tax deferrals and bank loan guarantees with €175m or €55 monthly in direct injections of cash towards workers’ wages.

Then, on Tuesday night, the government announced a second set of incentives which will ratchet up debt to 50% of GDP and inject €70 million monthly in wage subsidies.

There was no hint that state employees’ conditions will be touched to reflect the loss of income by the private sector workers.

In fact, it is interesting to note suggestions by sociology professor Godfrey Baldacchino. In his opinion, the country needs a pragmatic scheme to  avoid mass unemployment, namely a 20 per cent pay cut for workers who earn more than €20, 000, a three-day working week and early retirement schemes for all employees over 59.

This would mean a cut in salaries of most of the 47, 600 state workers who on average earn around €20, 000 annually.

This may prove to be politically unpopular.

My alternative suggestion is based on a pledge that the state temporarily reduces its taxes, licenses, electricity and water tariffs and surcharges on motor fuel.

A three-month moratorium should be offered to arrears of any monies due to the state. The duration of the first phase will cover  three months till 30 June 2020 with cash support to be administered as a surge and not offered as a trickle down effect.

This would send a bold message to all business sectors (similar to schemes announced by Denmark and UK) that if they retain staff during the first three months, then during the following quarters the island will be in a stronger position to lure back lost business.

Therefore, ideally there should be registered a foundation or a private public partnership to oversee the disbursement of direct cash injections to the deserving cases in private sector.

This would be funded by the state as to 1.2% of gdp (say €1. 6 billion) plus a voluntary percentage of funding from local banks (say up to 50% of the government contribution).

Any shortfall from local banks would be supplemented by Malta Development Bank. This will bring the total fund to circa €2. 4 billion.

The state will pay 80% of wages up to the median salary; the balance of 20% to be contributed by firms.

All the constituted bodies would appoint a representative on the management committee of the foundation to protect and monitor claims by their members.

Malta Enterprise could be the ideal agency to receive bona fide claims which will be based on AI technology so as to achieve speed and fairness in paying a cash sum to applicants who retain their workers or agree to enter into a scheme to temporary offload surplus staff to accredited employers for a limited period on same employment conditions.

Malta Enterprise could design applications forms which will ask for basic business activity supported by management accounts to be certified by a team of appointed independent auditors (recruited by public tender).

All civil servants with salaries above median pay would be able to choose  to either take a 10% cut in salary as a measure of solidarity or contribute equal number of days in paid leave to sustain a solidarity fund for the cost of medicines, equipment and potentially the conversion of hotels into hospitals.

For this year, all directors in government departments should be encouraged to achieve a 5% cut in recurrent expenditure.

In conclusion, the new incentives announced on Tuesday are a bold improvement if the economy can return quickly to normality.

If not, then government pledged to reconsider the situation again in consultation with constituted bodies.

George Mangion

 

Author: George Mangion
Published on Malta BusinessToday 26th March 2020
Get in touch: info@pkfmalta.com