Author: George Mangion
Published on Business Today 22 October 2020

We have just assisted in the publication of next year’s budget which – as always – drew mixed reactions from various sectors. In his pre-budget comments perit David Xuereb, president of the Chamber of Commerce, said that this exercise could not be a one-year budget but had to present longer-term solutions and measures.

“We want the government to be courageous and to think of the medium and long term, lest we end up looking back in regret at this budget as a missed opportunity to plan ahead,” he said. “The 2021 budget needs to be a particularly formative budget, which will determine the country’s future during and after this pandemic”.

He also told BusinessToday that the manufacturing industry, which is already having to deal with vastly reduced orders due to the COVID-19 pandemic, could suffer irreparable damage and losses if many more workers end up in preventive quarantine. Malta’s largest union, the General Workers Union, said it was pleased with Budget 2021 and has praised the government for combining “economic caution and fiscal discipline”.

The GWU thinks that the country must be ready for the economic growth that is expected in the coming years, not just when the world finds a COVID-19 vaccine but also as a result of the economic stimulus the government has introduced over these past months. The Malta Hotels and Restaurants Association said it values the government’s strong focus on social initiatives in this budget as this will inspire a feel-good factor across all society, in difficult times for all.

Bernard Grech, leader of the opposition, said he was disappointed to hear nothing about electricity and water tariffs or about how to help “the 83,000 people at big risk of poverty”. “We heard nothing about a holistic plan to help local businesses and we heard nothing about Gozo,” he said. Finally, he lamented the fact that this budget was planned for today but forgot about tomorrow.

One may comment that the 2021 budget has been vastly impacted by the sudden wave of the pandemic which has decimated one of the pillars of the economy: the hospitality sector.  Last year the island benefitted from a record number of visitors (including about one million day-visitors on cruise liners).

This industry helped immensely to generate mass domestic demand but the lockdown has resulted in a drop of 12% in exports. This is a massive drain on the GDP growth which previously created a feel-good factor and resulted in full employment not least due to a runaway building sector that saw mega-developments surge all over the island.

The unprecedented wave of economic destruction that the pandemic has converted a 0.5% of GDP surplus in 2019 to a whopping 9.8% deficit (almost €1,200 million). This monumental deficit has never hit the island so harshly not even at the peak of the 2007/8 world economic crisis and it peaks at a time when the number of COVID-19 cases has been climbing at an unprecedented rate.

The cost of monitoring the virus is added to the stress inflicted on workers in the private sector who have been in constant fear of being made redundant.  The stark fact that almost 100,000 workers rely on the government-extended furlough scheme is no joke and must have stressed the finance minister to propose a stable budget which as its main prerogative was the improvement in welfare benefits with special emphasis to help workers in the low-income scale and pensioners.

The fact is that the government has not touched the working conditions of its own employees (almost 44,000) at a time when it has seen its own tax revenue dwindle during the onset of the pandemic. The drop in tax revenue has also been a Damocles sword over its head that must have shaken the resolve of any finance minister seeing that our deficit has exploded and may take a number of years to regain the surplus to be able to repay the deficit (9.8% of GDP – approx. €1,200 million) this year pushing upwards national debt of 58% of GDP.

One cannot but praise the stamina of the finance minister not to resort to imposing extra taxes or new austerity measures but instead paving the way for more wage supplements – now extended to March 2021 (costing €40 million monthly).  One may be excused in describing this is as a generous (aka election) budget that wants to boost domestic consumption and maintain employment at a sustainable rate of 4.1%.

The uniqueness of this budget is exemplified by the granting of a €5 increase weekly for about 93,000 pensioners, and other measures such as improved child allowances and a welcome grant of a one-time cash gift of €350 to elderly reaching the age of 75years. Small traders with total revenue of under €30,000 will now become vat exempt.  The extension of relief of stamp duties on property purchases was introduced for first-time buyers and a novel idea to reduce donation tax within family members of up to €250,000 exempt with a 3.5% tax rate thereafter.

A welcome announcement is the building of 1,200 new social housing units over a number of years. A remarkable €450 million will be invested over a seven-year span to build an extended Life Sciences centre, improvement of industrial estates, a new Kordin business centre and a venture capital fund for start-ups (previously a Cinderella concept).

This is a redistributive budget with the repeat of an issue of another tranche of free vouchers to spurn a higher domestic consumption – now extended to be cashed at shops and not exclusively on hotels and restaurants. The budget, as previously announced, included provisions for more free medicines especially for cancer treatment and a new St Michael Centre for palliative care in tandem with Hospice Movement. It also included a social scheme to add more beds for the elderly, including joint investment from the private sector. This will help in special cases of dementia sufferers, adding telecare improvements and other specialist medical services.

It goes without saying that the island has no mineral assets and therefore it has to continue to improve the educational levels of its workforce.  The main thrust of budget proposals is to strengthen vocational learning and the containment of the high numbers of early school leavers. Free internet is to be offered to students who choose to continue studying beyond the secondary level.

In conclusion, the budget is a pivotal one coming at a time when the country finds itself at a crossroads. It needs to assure investors that the government is serious about creating a level playing field and reducing uncertainty. Only thus can new initiatives be taken by the private sector to rebuild a new horizon with an accent on digital and the green sector that will usher in a new dawn.

Author: George Mangion
Published on Business Today 22 October 2020
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