A Budget that extends the safety-net for Businesses, more tax incentives should follow to enable new investments
19 October 2020
Budget 2021 The Malta Chamber of SMEs is pleased to see a number of its...
Budget 2012 must be targeted at increasing growth through the utilisation of unutilised economic resources, economic resources such as access bank liquidity, building stock, alternative energy possibilities, and underutilised potential improvement of waste management. The Maltese banks have excess liquidity far beyond that they need but also within the limits of what Maltese SMEs need. Under current tight credit rules banks have no urge to go beyond standard security requirements and most small businesses cannot come up with additional collateral and be able to guarantee the loans they need to make their business grow, refurbish and renovate or move from a dying line into more attractive business opportunities.
The recession has eaten away most reserves and the properties they have for use as collateral for extensions are either empty or currently unsalable. Government must incentivise the banks through enhanced loan guarantees beyond the restricted conditions and limits of the micro credit schemes so that businesses can plan ahead, invest and grow. Small businesses represent 98% of Maltese enterprise. If they all make one step further, our GDP will grow ten steps forward.
The owners of the empty buildings spread all over Malta need incentives to use the excess building stock for business and household expansion. Government must guarantee the fiscal incentives to encourage business growth in the localities. Women want to work but they want to work closer to home so every hour available is used economically and not wasted travelling around Malta. Enterprise can be encouraged to move back office work to our villages through schemes that encourage empty blocks to be used as additional office space. Many businesses want to buy new premises to expand. Many empty blocks can be changed from apartments for sale to old age retirement homes, new self catering tourism accommodation or lodging for tourists or students.
We have enough resources for growth. Government needs also to speed more our capital investments in the infrastructure. Too much of the infrastructure is old. Spending on capital investment not only creates growth but makes the country more comfortable.
If the economy grows the deficit will fall as a ratio of GDP and if the small businesses grow and young families are encouraged to buy new homes, the Government will also earn more as an average out of every €100 increase in GDP, 20% goes in increasing labour income, 40% goes to Government as an additional tax review and 40% goes to enterprise to cover all enterprise costs and profits less wages.
Reduction of Public Deficit
At 68% of GDP Malta's Public Deficit is too high for an open economy like Malta, Economic imbalances, both internally and externally are worse than for other economies with large internal markets. Government should in Budget 2012 take serious action to reduce the deficit in Public Financing.
GRTU supports all schemes that improve productivity. Productivity is the result of greater and higher quality investment in all sectors, increased labour economic contribution and investment in new technological systems, innovation and better management of resources.
The Maltese economy still suffers from excess capacity and oversupply in various areas. The total result is that important resources like land, human capital and financial resources remain idle or unutilized and thus fail to contribute to GDP Growth.
Government should not in Budget 2012 increase current expenditure not only because of its negative impact on the deficit in Public Finances but also to avoid unnecessary inflationary increases. Government should reduce expenditure on non-productive sectors but heavily increase capital expenditure on capital investments. The Capital Budget as planned for the next 3 years should grow substantially and be used as a tool to further strengthen the infrastructure and the enhancement of Malta's potential as a modern knowledge-based economy.
GRTU expects a smart budget that emphasizes capital investment, better utilization of economic resources, new incentives to encourage and promote the growth of internal economy through greater private sector capital investment incentives and incentives to enlarge mobility of labour towards more productive sectors, reduction of costs for enterprise and the promotion of new financial instruments that encourages the better utilization of financial resources held by the banks and by the private sector.
Specific proposals and incentives
1. Encourage capital investment in the infrastructure
Government did well to accept GRTU's proposals on Public Private Partnership to increase the capital funds available to Government and Local Authorities. Government should now provide structures and incentives so that the private sector funds are directed towards new Capital Infrastructural projects that are needed to re-innovate Malta' ageing infrastructure in various sectors and to create new opportunities for investment in the harbours, in manufacturing, in logistics operations, in Green Jobs and the Environmental projects and in areas related to the knowledge-based economy.
2. New investment in the small enterprise sector
Today, 98% of Maltese enterprises are micro and small in spite of the recession that has affected Malta deeply in 2008-2010, the self-employed and micro and small business owners have retained their level of employment at a heavy price to enterprise reserves and profitability. The micro-invest scheme and the micro-credit were only employed belatedly after strong pressure by GRTU and though successful, on their own they are not enough to face the challenge ahead. The export, tourism, gaming and financial services sectors may face greater difficulties in the months ahead as the international economic and financial crisis drags further on, so it is essential that Budget 2012 promotes greater capital investment at the micro and small business sector. GRTU proposes a new SMALL ENTERPRISES FINANCE GUARANTEE (SEFG) scheme supported by a Fund of € 50,000,000. The Fund should be financed through the issue of capital guaranteed special Projects bonds. This Fund could be managed by Malta Enterprise but ideally it should be managed by a separate organization. The Fund will only issue loan guarantees. The SEFG Scheme will be a targeted measure intended to facilitate additional commercial lending that could not otherwise be available by providing lenders with full or partial guarantee.
Decisions on the use of SEFG, eligibility and lending terms in individual cases will rest with lender, there will not be an automatic entitlement to receive a guarantee loan and there should not be any pre-qualification process. Loan applications will first be assessed via the lender's own commercial criteria before any consideration of SEFG eligible criteria. Government agrees with the financial institutions who accept to operate the scheme on the terms and conditions of lending that qualifies for loan guarantees under SEFG. Businesses would than approach and discuss their borrowing requirements with the approved lending institutions. The list of accredited SEFG lenders will be published.
SEFG will issue loan guarantees on lending repayable over terms between 3 months and 10 years accept where indicated on all or any of the following loan facilities:
o New term loans (unsecured or partially secured)
o Re Financing of existing term loans
o Conversion of an existing overdraft into term loans
o Invoice finance guarantee (available for terms of up to 3 years)
o Over draft guarantee (available for terms up to 2 years)
The precise nature in terms of any facility made available by individual lenders will vary in accordance with that lender's standard, commercial lending criteria.
SEFG will be intended to support lending to viable business that can ultimately re-pay the loan in full. Lenders are allowed to require personal guaranteed security where available (except the borrowers principal private residence) in line with the standard normal, commercial lending practices, the Government guarantee will be a guarantee to the lender covering loans that would otherwise not have been made available given the borrowers available security. The Guarantee will not provide insurance for the borrower in the event of default. The borrower remains fully liable in the event of default. Loans for most business purposes to enterprises in most sectors will be eligible.
Businesses will need to provide all the information normally required by a lender in connection with a loan application including:
o Current Business Plan, including details of the purpose for which the loan is required in details of other investment in any financial commitments of the business
o Financial Projections
o Historic Trading Figures
o Statutory and Management Accounts – (especially drawn statements will be required by sole traders)
o Information on any other publicly funded support received by the enterprise within the past 3 years.
Another incentive in support of small businesses that GRTU is seeking is a complete exemption from property taxes on the purchase of property by new business start-ups or businesses employing less than 10 persons on properties bought for use as business premises. This incentive should be given in addition to the Small Enterprise Finance Guarantee.
3. In support of Localities
The level of economic activity in the localities can be improved. Back office work is still concentrated in specific localities in Malta and while Malta continues to attract back office work from foreign countries Malta has still not provided an effective incentive package so that employees in back office work, especially women will not have to waste hours and additional expenses on unnecessary travel. The excessive and unplanned building boom of past years have left many buildings empty and the only solution Government misguidedly accepted is that of encouraging foreigners through tax advantages to be attracted to purchase these properties. GRTU's proposals are first and foremost to cause a change of view of reuse of these buildings so that more empty buildings can be used for back office work or for other activities of an economic value. Tax incentives and even grants should be provided for more office space to be created in the localities and tax incentives given to employers who are willing to transfer back office work to the localities. In the first instance, Government should cause Public Authorities themselves to make use of the incentives offered.
Many of the available empty buildings can also be incentivized for use for other purposes more as specialized homes for the elderly. Retiring persons prefer to live in their localities but not necessarily on their own and it makes a lot of economic and social sense that once empty buildings are available owners of suitable buildings are given the incentives to utilize these premises as retiring homes.
There are other economic uses that empty buildings can be used for including the lodging of tourists. Other services in the localities like Cafés and Restaurants and many retailers will benefit if tourists accommodation spreads from the traditional tourists areas to the localities. Incentives should be provided so that owners of large homes and owners of a large block of empty apartments are encouraged to transfer them into boutique hotels or bed-only tourist accommodation. The spread of tourists amongst Malta's localities will ease the increasing pressure on the infrastructure resulting from a necessary increase in tourists flow to Malta needed to enhance tourism's contribution to Malta's GDP. GRTU continues to believe that Malta's tourism carrying capacity should at least reach a target of two million by 2015 and the utilization of empty available resources in the localities can make this possible without undue pressure on the environment if the right incentives are provided. The value added in the utilization of available resources that could easily be transformed with the right incentives for tourism purposes could be remarkable.
Host Families for instance are a valuable resource. These are dedicated individuals which open their homes to total strangers and welcome them and do their best to provide cheap lodging at a good standard while providing the experience of the Maltese way of living. The GRTU knows of minor shortcomings in the sector however the whole cannot be made to suffer for it. GRTU therefore proposes to further incentivise the sector and help it become more competitive. GRTU proposes the reduction of the Host Family licence per bed which would equal the licence per bed paid by hotels. The hotel industry and the host family sector are currently in competition and we think that it is only fair that they compete under the same rules.
Over the last three years the Retailers in Valletta have been drastically affected by the continuous works of regeneration and also paving, other then a number of construction projects in the city and city parameters. This has brought about a negative income to the retailers in the locality and despite this they have kept the same level of employment and provided the same services. This also despite the heavy recession faced by these SMEs in the last two years.
GRTU recommends the following proposals in order to compensate partially the said losses:
The above are temporary measures which would alleviate the current problems faced by the Retailers in Valletta.
4. Families and young couples
The oversupply of empty apartments throughout many localities in Malta offer excellent opportunities for young couples to purchase houses at affordable prices for families with young children to have an opportunity to purchase a new and modern apartment. GRTU proposes that a property tax holiday is provided for the purchases of properties by home-owners and young families and that additionally a special loan guarantee should be provided to cover up to 50% of the security requested by lending institutions to cover the loans needed to cover such purchases. The advantage of such a scheme is to encourage more families to invest in home ownership without a negative impact on their purchasing power as households.
5. Reducing private debt
Besides a problem of a growing National debt due to mainly an unsustainable public sector financial deficit Malta is also suffering from a growing, and in many cases unsustainable high household level of indebtedness. This is a situation that is putting many families' especially young couples in dire straits and this is having a very negative impact on private consumer spending. Malta is one of the few countries in the EU that have not taken steps to cause the banks as agents of leading credit cards and as dominating in the market for loans to households to reduce the cost of credit to families and individuals. GRTU strongly advises Government to cause the financial institutions and other credit awarding facilities to promote a reduction in the costs of credit to households.
6. Recruitment assistance
Too many small businesses are finding difficulty to employ additional Maltese workers and the schemes operated by ETC are increasingly bureaucratic in their implementation and reimbursement procedure. This is causing more and more small enterprises to seek the employment of other EU Nationals either on casual work bases or on seasonal and even short-term employment.
Unfortunately many small businesses faced with the bureaucratic hurdles are taking the risk to employ without due consideration to fiscal Laws. GRTU is proposing a practical remedy to this situation. GRTU's recommendation is that all EU Nationals employed on a temporary bases are immediately registered electronically and that such employees would suffer a deduction of 15% – 20% from their wages withheld by the employer as payment due as income tax and social contribution. This will in itself provide incentive to employers as the cost of such labour will be in turn deductable under standard income tax procedures and will provide Government with additional income necessary to cover social and medical costs of these registered employees.
7. Increasing female participation in the labour market
GRTU agrees fully that the participation of women in the labour market is critical for economic success. GRTU believes that more women will be encouraged to participate in the economy if:
8. Better packaging directive enforcement
To many SMEs environmental legislation and Corporate Social Responsibility (CSR) may not be the primary issues on their agenda however, there is now a growing awareness within the SME sector that unless they become conformant to environmental legislation and carry their responsibilities, the sustainability of their future operations are in jeopardy. Furthermore there is greater consciousness that the green economy opens new opportunities for SMEs.
The current environmental legislation is of paramount importance and although considerable achievements have been made during 2011, the need to make sure that a fair and level playing field is maintained and is transparent is essential to ensure that the culture of abiding to such legislation remains an onus on all enterprises. Over the last year with the help of the Approving Body and MEPA, through coordination from MRRA and OPM, a fiscal regime was set in place to make sure that free riders to packaging waste legislation are addressed. This is an issue closely related to the elimination of the black economy. It's a vicious circle, a substantial number of enterprises evade on one fiscal measure then they get caught having to evade another.
There are currently just over 2400 packaging producers who place packaging waste in the market who are now financially paying Schemes in return for carrying out their environmental obligations in respect to LN 277 of 2006. These place just over 35,000 tons of packaging waste on the market, compared to the 90,000 tons which are currently estimated that are being placed in the market. Taking into consideration, conservatively speaking, that another 10,000 tons of market placement are self compliant, the estimate is that the free riders displace over 45,000 tons implying that another 2,400 enterprises remain within the black economy on this issue.
GRTU believes that if all enterprises comply and the authorities continue to strive for full enforcement, all the costs per enterprise will go down and beside the overall advantage to the community in general there is an actual cost cutting that can be enjoyed by enterprises. As things stand today the complying enterprise is paying for the free riders. GRTU has over the last few years made sure that reports made by our members of non-compliance in respect to this issue are forwarded to the authorities concerned. The GRTU however feels that although a structure at MEPA is in place it needs to coordinate much better with the Schemes in order to increase the bid to find free riders. For this purpose GRTU proposes the setting up of a Producer Responsibility Enforcement Committee with the direct involvement of Authorised Schemes.
9. Implementation of the Waste Electrical And Electronic Equipment Directive LN 63 of 2007
The implementation of this Directive is years overdue in Malta due to the current Eco Contribution being paid by producers to Government in relation to EEE (Electrical and Electronic Equipment) placed on the market. We are attaching our feedback to the current consultation document issued by the Malta Environment and Planning Authority in respect to the implementation of this Directive in Malta. Its implementation would mean a reduction of €8million in Government revenue but it would also mean placing an onus on producers to work with authorised Schemes, making sure that Legal Notice 63 of 2007 is actually implemented.
The document entitled ‘GRTU WEEE feedback' is attached as Annex A.
10. Creation of Green Jobs
Environmental legislation has brought about the need of more market driven incentives so that when Green jobs are created we would have the manpower readily available. ETC should set up courses, either themselves or through MCAST so that courses are introduced free of charge.
The following are our course proposals: environmental assistant, landscaping officer, community environmental officer, season material pickers (horticulture), schools environment project officer, eco councillors, green procurement officer, environmental journalist, emissions technician, waste management planners, environmental inspection officers, street enforcement officers, environment health and safety officers and waste recovery assistant. Job Descriptions for all the above can be provided by GRTU.
These are just a few which do not include greener buildings. This aspect alone can revitalise the economy, however it is of importance that if fiscal incentives to entrepreneurs are put in place, the workers to affect these trades are available to do it.
The regeneration of vacant property should be a certain measure to provide short, medium and also long term need for Green Jobs. The vast amount of vacant properties need to be regenerated to reach the obligations of the current Energy Efficiency in Buildings Directive.
GRTU proposes a stamp duty reduction for purchases of property which have been vacant for more than five years. Those purchasing these properties would be obliged to provide a final certification that the finished property conforms to the above Directive as being implemented by MEPA. This would provide green jobs in the renewable energy sector, insulation sector, light design, lighting suppliers, roofing suppliers, etc…
In addition to this we are at a time when a Green Economy Steering Committee set up by Government has for the last year been working to provide a final working document. GRTU duly notes that the educational institutions need to gear up faster to changing trends. The setting up of these courses will enhance the sector. This is what can provide a win-win situation to enterprise in the long term.
11. Improving Energy Efficiency
GRTU continues to be proactive in its approach to make sure that SMEs drive themselves towards both energy efficiency targets and also towards a carbon footprint which is acceptable and in accordance with the standard set by BSI, being PAS 2050. Government needs to realise that investing heavily now will result in long term decreased purchases of fossil fuels, a healthier lifestyle for people and accordingly an increase in a healthier environment. Government must carry out a swift assessment of the untapped potential in terms of energy efficiency that there might be in industry, in order to draw up further relevant measures to be adopted.
Government should set up a fund to provide loans for SMEs, to improve energy efficiency. The loans should be for capital purchases of equipment only, which will eventually reduce costs and reduce carbon emissions. Loans are to be unsecured, interest free and repayable over five years maximum. Loans would be provided up to Euro 50,000 for purchases of capital equipment such as:
12. Lower emissions
It is a known fact that carbon emissions ensue both through the sale of a product or the provision of a service and this throughout the lifetime of the product and service and it is high time we realise this fact. When dealing with a product for instance, emission production starts from the raw material stage, the packaging needed to produce it, through to manufacture, transportation, sale to the end user, use and disposal.
In this respect Government should introduce a standard (in the UK it is Pas 2050) for businesses to achieve the standard set and then each business will be able to carry a Carbon Reduction Label. PAS 2050 provides a carbon footprint methodology which measures these emissions, leading to valuable energy and cost saving opportunities to businesses.
Government must be the one to set the ball rolling by firstly establishing a Standard, then providing an assessment of its own entities and thirdly provide SMEs with the infrastructure to have their own carbon footprint assessed.
Government should provide incentives to induce SMEs to incur less energy transport costs. GRTU suggests the provision of a grant to study the possibility of a logistical distribution centre for goods in the areas of Valletta, Sliema, Hamrun and other densely populated areas. It lacks sense for a small island like Malta to have hundreds of different delivery vehicles making their way within these dense areas and leaving behind them a chaos and excessive carbon emissions. Goods should be transported via a logistics centre and with approved electric vehicles. This will eventually also increase productivity for SMEs in the distribution sector and other sectors that provide distribution of goods. The study would include all stakeholders.
Registration tax on powered two wheel vehicles not exceeding 250cc is dropped completely and transferred
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