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Network News • 29-07-2021

Wistfully riding on a tiger

Author: George Mangion
Published on Business Today – 29 July 2021

Comparisons can be odious but one cannot believe our fate when Malta is now on the FATF’s grey list and placed on the red list for money laundering countries by the UK. At first, we thought that the same fate would hit Romania – an ex-Communist country. This faux pas did boomerang as Romania still enjoys a spotless reputation.

In Malta’s case tax evasion has hit the highest mark making it the top one in all European countries. Corruption in Romania is rampant and this raises the risks of doing business in the country and like in Malta, has an ageing population and significant tax evasion. Alas, we are not in the same boat and Malta with its grey-list signage has now to roll up its sleeves.

One hopes that under new management, we can collectively persuade FATF of our deliverance away from this poisoned chalice. But then Castille sleeps cosy when a recent Times of Malta survey shows it enjoys a landslide majority if an election is called today.  Such a winning ticket reminds me of the Golden pass in the chocolate wrapper of the Willy Wonka factory movie. Whether the Golden wrapper ends in a triumphant return of the Joseph Muscat legacy is subject to conjecture.

There are a number of fault lines in the obstacle race to reach the coveted “Invictus” throne.  Covid tantrums start with a bang as no election date can be planned when people are still advised to keep social distance and avoid mass gatherings due to the resurgence of the strong Delta variant.

This leads to a controversy among the voters - those with the jabs from the jabs-not. Malta soon aims to reach 80% full vaccination and theoretically achieves herd immunity but travellers who enter unvaccinated may upset the harmony as only one in four people around the world has had the first dose of vaccine and only one in eight is fully protected.

Europe planned ahead last year to secure abundant vaccines and recently approved a Resilience and Recovery Fund to help members to rejuvenate their ailing economies - now riddled with debt. Will this generosity slow down when furlough schemes are tapered or removed in September? Back in Malta, most employers (particularly in the hospitality, retail and light manufacturing sectors) are facing a labour shortage.

Silvio Schembri, Minister for the economy and industry, claims the furlough scheme has saved 50% of the non-state working population with only 1,600 on the dole queue. So, many ask - where have the workers gone?  Particularly among the lower-skilled cohort, they seem to have been riding on a tiger only to end up eaten by it (as the story goes).

The next 2022 budget promises no new taxes yet it must focus on this perceived worker shortage by improving minimum wage to encourage job mobility. Even professional offices of lawyers, engineers, medical clinics and auditors are having to start poaching staff and improving salary perks to retain quality staff. On a macro level, our domestic woes pale into insignificance when we read about bottlenecks faced by multinationals with shortages of microchips that have disrupted the manufacture of electronics and zero-emission cars.

Naturally, due to Covid restrictions, freight costs have soared and prices of imported construction materials (particularly steel) have seen prices quadruple.

This is fuelling house prices where a three-bedroom apartment in a semi-finished and unfurnished state are fetching over €320,000 in towns and villages. With a 10% deposit and a 90% mortgage, young couples will spend their lifetime paying the bank. Upper market rents have tumbled due to the lack of new entrants to the market from high rollers yet some think they will soon start to rise, too.

Food inflation in restaurants and eateries are on an upward trajectory and vat evasion is rampant. This has been partly exasperated by the recent issue of 500,000 cash vouchers of €100 each by Malta Enterprise to practically all inhabitants, visiting divers and foreign students learning English.

The final whistle stop will be when the stimulus will be withdrawn next September as emergency government-aid schemes, such as furlough top-ups, deferred tax payment concessions and subsidized banking loans by Malta Development Bank begin to expire. Riding on a tiger carries with it grave dangers.

Author: George Mangion
Published on Business Today – 29 July 2021
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