Restoring Confidence For a New Start

Policies that aim to master the current economic and financial crises and to support a recovery of Europe's economy must be placed at the centre stage of the of the Cabinet of Ministers.

The strengthening of the SME sector is key in the economic recovery. Work has already started however implementation is slow. With the European Small Business Act (SBA), launched during the French Presidency, the European Institutions have finally recognised Small and Medium Businesses` central role. Now we have to start thinking of effects, the SBA will only have positive effects if the commitments made with the SBA are fulfilled at European, national and local level. The Maltese Government has to grab the chance now that the policy is still fresh to focus on its implementation – but to do so, it will have to tackle the real needs of the Crafts and SME sector.

There are four pillars on which the Maltese legislature needs to focus on:

1. Help SMEs to Survive the credit crunch and provide support for an economic recovery

The current and ongoing financial turmoil has significant negative effects on access to finance for SMEs with credits and loans becoming more difficult to obtain. A decrease in economic activity due to lack of finance must be avoided at all costs. The Maltese Government must do its share in re-stabilising financial markets by:

• Ensuring that any public support given to banks as well as interest rate cuts are passed on to costumers and not used in favour of bank shareholders;
• Ensuring that the financial markets are better targeted to real economy than to financial speculations;
• Reforming the global regulatory system for the financial market (including rating agencies) to avoid the repetition of such crises in future (increase of transparency, no off-balance operations);
• Ensuring sufficient refinancing of SME loans (EIB, national intermediaries, guarantee schemes);
• Using any possibility to support company finance directly by Central Banks instruments;

The recovery must be supported by policies which aim to bring back confidence to all economic actors and to stabilise economic demand, without endangering fiscal stability in the long run. Therefore, the Cabinet of Ministers must contribute to a policy mix, which:

• Uses the extended possibilities offered by the new State aid regulations to support SMEs, especially with public guarantee schemes, including guarantees for working capital;
• Uses the possibilities provided by the Stability and Growth Pact to increase public investments without endangering the long term targets for budgetary consolidation;
• Stimulates additional private demand by setting the right incentives, i.e. for energy saving investments in private houses;
• Stimulates public and private demand by investments in infrastructure also via Public-Private Partnerships;

1. Support SMEs in their efforts to maintain as many people as possible at work

Smaller businesses have been so far more reluctant to lay off workers compared to larger enterprises. However, small enterprises have specific problems as regards labour market regulations, access to social benefit systems and access to training, which they cannot solve alone. Therefore, Government must support employment in SMEs by:

• Taking appropriate measures within the ESF and EGF at all levels so that SMEs can effectively benefit from adapted short time working arrangements, combined with effective retraining and re-skilling measures, for maintaining as many as possible people at work and facilitating transitions of persons becoming unemployed during the current crisis;
• Ensuring equal access to labour market instruments, such as short time working arrangements or "part time work" or other types of partial unemployment, like large enterprises have;
• Avoiding distortion of competition for SMEs coming from subsidised employment in the public or semi public sector;
• Reducing non-wage labour costs, especially at the lower end of the labour market;
• Opening all social protection and benefit systems to all employees, including those from small businesses;
• Promoting the occupational and geographical mobility of workers and notably the mobility of young people in vocational education and training in alternating training schemes such as apprentices;
• Enhancing partnerships between education and training institutions and social partners, in particular employers organisations, in the context of lifelong learning to guarantee a better employability of workers;

1. Provide SMEs with space to breathe and promote entrepreneurship

The European Small Business Act provides the principles for an effective policy in line with the needs of small enterprises and an encompassing catalogue of concrete measures to be taken at all levels to improve the business environment and to give SMEs enough space to breathe.

A key contribution for achieving an SME-friendly environment is a change in the perception of the role of entrepreneurs and risk-taking: entrepreneurship and the associated willingness to take risk should be applauded by political leaders and the media, and supported by administrations. This means at least respecting the voluntary nature of Corporate Social Responsibility for instance. Therefore, the Cabinet of Ministers must act to fulfil the commitments made in the framework of the Small Business Act and to implement the announced principles and actions – the sooner, the better:

• Legislation and programme planning at all levels must respect the "Think Small First" principle if they have any effect on small enterprises. This means that rules must respect the majority of those who will use them. This includes independent, specific and rigorous impact assessments for small enterprises, systematic consultation of representative Small and Medium associations for at least 12 weeks, the proportionality principle and the "only once" principle.
• The policy principles of the SBA should be put into practice by an inter-institutional agreement between the European Parliament, the European Commission and the Council. The European institutions will not be credible towards Member States unless they start committing themselves to the SBA principles. This is something Government should emphasise on and make its voice heard.
• Business transfers, especially during the crisis, must be made easier and close downs has to be avoided by new financial products (i.e. mezzanine instruments), consultative services and more favourable tax provisions.
• Internal market barriers resulting from 27 different tax systems, which are prohibitive for small enterprises, must be removed by a common tax base or by mutual recognition of the home tax system.
• The existing rules on late payments must become more effective and include also business-to-consumer relations, fixing a maximum period for public authorities and include measures that avoid that SMEs are pre-financing the big enterprises, in order to avoid a deterioration of the financial situation of SMEs

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1. Protect SMEs against unnecessary burdens

The programme of 25% until 2012 will only be successful if all European Institutions and the Member States increase their implementation efforts and if other burdens will not be created in the meantime. The actual standards in the fields of environment, health and safety, consumer protection and others create too often high administrative burdens and compliance costs, especially for smaller companies.

Therefore, the proportionality principle should be applied as a basic rule whenever SME policy is concerned. This principle means that SMEs should be treated differently according to the level of dangerousness and risks they may impact.

The needs and particularities of SMEs have to be taken compulsorily into account in all relevant policies, programmes and negotiations at EU and national level. Furthermore, the current economic crisis must lead to a review of all pending legislation that may put unnecessary burdens on small enterprises. Policy projects that were started in good economic times must therefore be re-assessed and checked against the new reality. Therefore, the Prime Minister must push these principles among the Cabinet of Ministers to review and reassess the following pending pieces of legislation, which may be especially burdensome for SMEs:

• The new proposal for a Directive on Consumer Rights: calling for more balanced regulations towards SMEs within the new directive;
• The recast of the Eco-design Directive so that it only applies to products made in series;
• The recast of the Waste Electrical and Electronic Equipment Directive (WEEE);
• The new rules on Green Public Procurement (GPP) to avoid complex and costly audit systems or certification measures;
• The recast of the Energy Performance of Buildings Directive;
• The Renewable Energies Directive without additional rules on professional qualifications;
• The Construction Products Regulation with simplified procedures for small and non-series products;
• The new proposal for a directive on non discrimination outside the labour market, which is better dealt with through non-binding and supportive measures;
• The revision of the Maternity Leave Directive: I do not see any need to increase the duration of maternity leave and disagree with the increase of payment allowances, taking into account the changes made by the European Social Partners in the Parental Leave directive;
• The revision of the 4th and 7th Company Law Directives.
• The revision of the Euro-vignette Directive on heavy goods vehicles, which might trigger a further increase in transport costs without achieving the desired environmental improvements.