The omens were good for the Robert Abela administration carrying the flag winning over an electoral majority of 39,400 votes. The massive landslide was widely predicted by Vincent Marmara, the chief Labour party pollster and many rejoiced thinking the island would go on to sail along rivers of milk and honey promised by the red torch carrying brigade. Yet, the honeymoon was soon over, and the lipstick has long since dried on the blushing bride.

Explaining the decision to take Malta off the Grey List, a spokesman for FATF said the island had doubled the resources of its business registry and conducted a thorough risk assessment. Almost a year after the Grey List was lifted, MBR announced a more comprehensive software for users -  although certain companies like Air Malta and Electrogas, as well as political parties, are years behind in filing accounts.

Buoyed by the Fitch latest rating of A1-stable, prime minister Abela welcomed the partial privatisation of Air Malta which hitherto was refused permission by the Commission for a government bail out.

In this context, Ryanair owner brushed off suggestions that MTA subsidies gave his airlines an unfair advantage, calling the amount of support “very small”, whereas others like Louis Farrugia (former Air Malta chairperson) said he believed the partial privatisation would ensure the company was run commercially, adding it was what he and his colleagues had wanted to do in 2013.

The show must go on and party apologists want us to thank the Heavens for little mercies. But reality grinds on.

When addressing the MCESD, finance minister Clyde Caruana cautioned members to tighten their belts and prepare for a bumpy ride. More grim news followed. Caruana said that Malta must be “prepared for what's to come” as he recalled the austerity climate pertaining as economists measure the sluggishness of Eurozone markets.

He was prophetic about the stigma of inflation. He blamed its occurrence on two factors:  higher oil prices (expected to reach $100 per barrel after the budget date), the Russian-Ukrainian war and after effects of our high debt servicing costs (around €520,000 daily).  Another headache is the shortage of skilled workforce which has been camouflaged by the importation of thousands of Nepalese unskilled workers headed by powerful migration agents.

A scandal broke out showing agents were charging double minimum wage rates to government companies while poor workers had to live on minimum wage and after expenses try to send money back home.  In June, the Times of Malta reported how foreign workers are paying up to €250 a month each to share a single apartment in Sliema with around 40 other people in cramped and unsanitary conditions.

As a case in point, tenants in the George Borg Olivier Street residence are sleeping up to nine in a room, share three bathrooms and wash and dry their clothes on a single outside balcony. The increase in the number of TCNs implies that sharing arrangements are also changing as co-sharing has always been common with the foreign workers, anecdotal evidence indicates that overcrowding is more prevalent with TCNs, especially those from African and South Asian ethnicities.

The Housing Authority issued a report on the housing problem and some of its conclusions implicate that part of the problem can be due to discrimination, which results in lower access to housing and segregation.  The report concluded that such gaps should be addressed and that the Housing Authority, along with the Ministry are discussing ways to update the regulations to ensure that the laws reflect the evolving market needs and realities.

The Housing Authority has introduced several schemes intended to provide rental assistance to low-income households, assist in homeownership or to support their purchasing power also give us a glimpse into characteristics of categories that are more prone to face housing affordability difficulties.

Naturally the advent of a vast cohort of low income TNC’s has acerbated issues.  It is calculated about 78,000 TNC’s drive scooters to deliver fast food, man the 450 buses, clean streets, toil in construction sites and serve food in most hotels and busy restaurants.  But hold your horses as Abela calmed the party faithful saying “this is why it is so important to have a government that knows what it is doing, that has the experience, and the proven track record where it counts”.

Clyde Caruana was less sanguine. He told MCESD members that government could not be expected to control the price of everything.  He uttered this warning to the awe-stricken congregation at MCESD.

In our case, it seems that the wicked lady of austerity is knocking at our doors. Some may label the tantalizing experience as if we woke up from a psychedelic dream.  Going down the rabbit hole is a metaphor for a journey into the unknown, as Alice is now invited to comment how the tiny nation is suddenly facing rising inflation, 7% increase in essential items like grain, wheat, cooking oil, and a lot of imported products.

Domestically, energy prices are currently under control but how long can Castille maintain the artificial one-time subsidies. These cannot be maintained forever, as was the case with the lavish issue of the free €100 gift vouchers, the €2 billion worth of financial aid to hotels, restaurants, English language school services, among many others via furlough schemes. Not to forget bank interest is reaching a high rate for ailing companies.

Another worry is the fragility of the financial services sector. The onslaught of new legislation aka transfer pricing, the banning of shell companies, imposing of a European common 15% corporate tax (this applies to 660 local companies employing 20,000 top earners), DAC 6, 7 & 8) and exit taxes have all turned the tables against us as a preferred financial domicile.

So far, Malta boasts of a long tradition of business support services especially auditing and legal services, enhanced tax competitiveness and the availability of skilled and English-speaking workforce. MCESD, MIA, IFSP, FIAU, MFSA, FinanceMalta and banks need to unite and collectively promote the fledgling financial services sector.

Author: George Mangion -Senior Partner at PKF Malta

Published on Times of Malta: 12th October 2023