Fabian Demicoli

Sme’s & EU Enlargement

How to meet the challenge – Grtu proposals

1 About
GRTU

1.1 Membership
GRTU – Malta Chamber of Small & Medium
Enterprises known also as General Retailers and Traders Union – Association of
General Retailers and Traders – is Malta's national organisation of independent
private businesses. GRTU today represents more than 7,000 Maltese small business
entrepreneurs. Many of GRTU’s members own or manage more than one enterprise and
the total number of business within the business community is therefore
substantially greater. The vast majority of retailers are members of GRTU and
that is one reason why GRTU has retained its traditional name of a General
Retailers and Traders Union as retailers and traders look to GRTU as their
national and local area representative.

GRTU is a non-party
political organisation continually campaigning for the rights of small
independent entrepreneurs. Over the past 55 years, GRTU has gained wide
recognition and it is today Malta’s major organisation representing the nations
20,000 self employed and small businessmen and women. The sector represented by
GRTU employs half the total of employees employed in the private sector. 35%
Malta’s GDP is produced to the sector represented by GRTU. More than 50,000
gainfully occupied owe their livelihood to the small business sector.
1.2 AimsGRTU's statute provides for a multi type organisation of
officially registered businesses whose main and unifying objective is a decent
return on capital invested within a framework of democracy and free enterprise.
Members of GRTU are all proprietors of their own businesses and they believe
that their own skills and capabilities are the most important factor in their
business success. A number of main external factors are essential for the
survival and growth of their business and it is the aim of GRTU to ensure that
these external factors and the business environment in general is favourable to
entrepreneurship. GRTU strives to ensure that critical external factors
compliment the spirit of entrepreneurship of members. GRTU's policies have
always been geared towards the fostering of private venture and the advancement
of small and medium-sized owner-managed enterprises. GRTU believes that greater
prosperity is within reach if commercial principles and practices rather than
political ideology were to guide economic policy-making.1.3
International AffiliationAs an Employers Association and a lobbyist in
favour of the rights of smaller entrepreneurs GRTU is a full member of UEAPME
which is the European Union Level Employers’ Organisation representing the
interest of crafts, trades and SMEs. UEAPME promotes small businesses throughout
the European Union and other European countries and lobbies European
institutions on behalf of this sector. Through UEAPME, GRTU participates in the
World Association of Small and Medium Enterprises (WASME). GRTU is also
affiliated to CONFIAD which is the World Confederation representing Customs
Agents and Forwarders GRTU belongs to CONFIAD’s Pan European Network of Customs
Agents. In this organisation GRTU acts as Malta National Representative of
Maltese Customs Agents and Forwarders (Burdnara). GRTU, also holds one of the
two posts allotted to Malta on the Employers side of the European Union Economic
and Social Committee, which under the Treaty of Rome, is the official social
partners consultative forum of the European Council and the European Commission.
GRTU also sits on a number of European Union Consultative Committees like the
European Social Fund Consultative Council. GRTU participate in various for a in
Europe and in the Mediterranean region in representation of Maltese small and
medium enterprises. As an Association of Traders and Retailers, GRTU is
at European level, member of the EuroCommerce which is the European Union Level
Organisation representing the Retail, Wholesale and International Trade Business
Owners. GRTU sits on the Social and Economic Committee of EuroCommerce and
participates in all meeting and consultations on matters effecting the
commercial sector.1.4 Lobbying
Founded in 1948, GRTU is today the
major organisation in Malta representing the interest of the self-employed and
small business entrepreneurs in Malta. GRTU operates as a nation-wide lobbying
force committed to furthering the interests of the small business sector. GRTU
is run by business people, for business people and funded by member
subscription.

GRTU provides input to the policy development process of
Malta’s political Parties structure and to government departments, government
agencies and a wide range of organisations that impact on the small business
sector.

2 Removing the Barriers to Survival and Growth

2.1 The
Small Business Sector
GRTU proposals aim to provide a way forward to
stimulate growth in Malta’s small businesses. The small business sector is both
politically and economically a significant one. Of the estimated 26,000
registered enterprises in Malta more than 24,000 are small businesses employing
less than 10 persons. It is estimated that small firms in Malta employ more than
50% of the total private sector workforce and account for more than 40% of total
turnover. Malta is increasingly becoming an entrepreneurial society. People in
power and people in general do not however recognise the increasing influence of
small businesses in creating long term economic prosperity and employment.
Employment in large manufacturing firms is decreasing year by year and the
situation is the same in the public sector, as this sector makes increasing use
of outside services and its role changes to enabler and facilitator. Many more
people will therefore be employed in small businesses and many others will seek
to start up in business. Unfortunately, successive governments’ development
presumptions and policies have reflected the economic requirements of
large-scale firms and the public sector. The resulting structures are inhibiting
the formation, survival and growth of small businesses. It is GRTU’s role to
ensure that this mentally is transformed and developed to one, which is more
positive, in deeds and not words, only towards small
businesses.

Technological progress, a more open world economy and
changing market demands mean that there is a requirement for a constant
restructuring of the economy. Malta’s future prosperity depends on our ability
to increase the rate at which new jobs are created within an evolving economy.
GRTU has supported Malta’s accession to the European Union. GRTU believes that
the enlarged European internal market operations under a fair competitive regime
offers Maltese traders and producers tremendous opportunity for growth and
expansion. GRTU believes that as participant in the largest internal market in
the world and operating from a strategic location mid-way between continental
Europe and North Africa, Maltese business enterprises face great opportunities
provided the right business environment prevails. GRTU proposals strive too
successful achieve the desired business environment.

A top priority for
Malta therefore must be to encourage the formation, survival and growth of
Malta’s small businesses, through the development of an enterprise culture. The
burden of bureaucratic red tape always falls disproportionately on small firms.
Small businesses have for many years been responsible for collecting PAYE, NIC's
and VAT on behalf of the government, statutory sick pay and maternity pay is
administered by employers, while they also fund redundancy pay. The additional
work being imposed on small business owners has grown too much and is stealing
precious time that entrepreneurs should devote to the development of their
enterprise.

Small businesses do not generally identify any one regulation
as the major problem. It is the cumulative effect of legislation that impacts
upon small businesses, often because it is owner-managers themselves that are
charged with compliance. According to recent estimates, a small business with
less than 10 employees spends 35 hours a month complying with regulations and
paperwork. This task, in small firm falls on the owner-manager. Furthermore the
Maltese authorities have taken the harsh approach of imposing fines that lead to
prison sentences on defaulting businesses rather than declaring unpaid fines as
civil debts. GRTU is adamant against this imposition.

Small businesses
play a major role in creating wealth and employment. But they can only achieve
this with the right regulatory framework. The major concern of small business
owners is the effect of regulation on their ability to employ staff. More labour
recruitment and employment retention rules have been imposed in Malta in the
last year then in the previous 30 years. The end result is that small business
owners are now reluctant to expand employment.

2.2 Reducing Red Tape and
helping the job creators
The government must pursue a policy of exempting
small businesses from regulations, similar to the American approach whereby
firms falling under an agreed employment / turnover threshold are exempt from
regulations that are more applicable to larger firms. Similarly company law
gives special exemptions to small-incorporated business. These exemptions and
thresholds do not exist in Malta. This is a major claim of GRTU.

In its
adoption of the Acquis Communautaire the government must ensure that the
principles entrenched in the European Charter for Small Enterprises is
implemented in Malta.

The government must undertake a review of existing
legislation so that legislation that is no longer relevant can be weeded out or
amended. The contrary however is happening and new laws are coming in, often
badly drafted and they take no heed of the burdens being over-loaded on small
business owners.

The government must insert ‘sunset clauses’ into Malta’s
regulations which mean that if a regulation is not renewed, it automatically
‘withers on the vine’, and the government must press during EU consultations for
Malta to be allowed to introduce sunset clauses on both directives and
regulations that are not applicable to small businesses.

Longer time
periods must be allowed between consultation and implementation of legislation
at both Malta and at European Union level and accountability for keeping to
agreed periods must be identified. Too much is being imposed in too short time
and business owners are left carrying the whole lot alone and
unassisted.

Government departments must engage an independent body to
publish clear, transparent and accurate cost compliance figures on business
owners of every new regulation. It must become standard government policy that
no new imposition on business is made without an independent measurement of
impact on business and a clear identification of past rules that are being
replaced and not added to.

To address this concern about statutory
instruments, the government must ensure that a Joint Committee on Statutory
Instruments (JCSI) be established with powers to order cost compliance
assessments (CCAs) on all statutory instruments where they affect the regulatory
burden on businesses.

The government should introduce a ‘time to comply’
assessment on all government forms. Businesses should note the actual time to
comply on a panel on the form, thus generating a running monitor on the time
aspect of the regulatory burden.

The government must order a full review
of how regulation is enforced.

The Ministry for Competitiveness must
produce an independent annual report on the cost of regulation to which the
government should respond with proposed policies and schemes to address the
damage caused.

The Small Business Unit must act as a single information
point for regulatory information, with a telephone help line, set up to advise
business. IT technology and the evolvement of e-government helps but small firms
without IT facilities are most at sea with new regulations.

The Prime
Minister must give an annual statement to Parliament covering the small
businesses environment and giving details of commitments made the year before,
progress on those commitments and plans for the following year. These
commitments must direct the action of all government departments relative to
small businesses.

2.3 CREATING A FAIR FRAMEWORK FOR EMPLOYERS
Small
businesses are now beginning to be recognised as the major job creators in Malta
too. According to government statistics out of a total of 24,000 enterprises
only 45 employ more than 200 persons. Moreover 94.6% of total establishments are
categorised as micro-enterprises, 4.3% as small and 0.8% as medium. Small
businesses now employ over 50 per cent of the private sector workforce. As the
number of small firm start-ups increases, this percentage should in turn
increase.

However, small businesses do not exist to provide employment
for employment’s sake – they employ people to create products and deliver
services. The numbers employed by small businesses will not grow if employment
law continues to be enforced without the employers’ interests being considered.
Of course employment law should protect the employees where necessary, but this
should not be to the detriment of the employer. Overall the implementation of
the Social and Employment Directives of the EU is causing a seismic shift in
employment law that many small business owners cannot be expected to suffer as
the legal fines and threats are too onerous and private business owners cannot
carry the mental pressure and fear of falling foul to the complex
laws.

Even those businesses that are prepared to overcome these hurdles
do so on the basis of the status quo. This does not take into account any future
legislation that would adversely affect their decision had they been in place at
the time the decision to employ was made. By any subsequent action, government
effectively breaks any agreement that tacitly existed between the two
contracting parties of employer and employee. Employees find themselves
advantaged at the expense of an employer who has not considered the additional
expense at point of recruitment. It is a false assumption that simply because an
employer employs then they are prepared to accept subsequent changes to that
legislation. The present situation leads to either reductions in staff or
non-employment altogether.

GRTU claims that when the government enacts
new legislation which may affect the terms of an existing employment contracts,
the contract should be declared void and subject to renegotiations.

GRTU
demands that a Small Business Employers Charter be introduced, stipulating the
rights which employers have when employing staff. Employers cannot be expected
to be held responsible when conditions shift to their disadvantages.

As
the administrative burden of employment and benefits systems are being
transferred to the employer there must be a major reduction in the number of
civil servants previously employed to administer such systems. GRTU expects that
government should reduce and not increase social contributions made by employers
when burdens are increasingly being transferred from the public to the private
sector without due compensation.

2.4 Supporting Small
Businesses
When drafting new policies and legislation, the Government needs
to take the perspective of a small business. This is in line with the European
Charter for Small Businesses adopted by the feira European Union Council on the
20th June 2000. This Charter boldly causes European Governments:

ï‚· “to
strengthen the spirit of innovation and entrepreunership”

ï‚· “to achieve a
regulatory, fiscal and administrative framework conducive to entrepreneurial
activity and improve the status of entrepreneurs”

ï‚· “to ensure access to
markets on the basis of the least burdensome requirements”
ï‚· “to facilitate
access to the best research and technology”

2.5 Economic and Social
Contribution of Small businesses
All today speak of the economic and social
contribution of small businesses. They have been identified as a key source of
job creation, enterprise and innovation. However, despite their relative
success, successive Governments have not given enough effective attention to
their contribution and, consequently, the policy framework within which they
operate constrains them from fulfilling their true potential. The schemes
currently being offered by Malta Enterprise are very interesting and a step in
the right direction, however small firms prefer to hold on to the funds they
earn and to utilise them directly in the fulfilment of their initiatives. If the
government is serious about meeting the ‘productivity challenge’ through
encouraging enterprise and innovation, it must rethink its policies towards the
small business sector.

Contained within GRTU’s submissions to the
Minister of Finance are a number of policy proposals that seek to encourage an
enterprise culture through reducing the constraints and regulations that bind
entrepreneurs. If implemented, the GRTU believes that the government will have
taken a significant step towards bringing the Maltese potential productivity
performance into line with other competing economies. The challenge ahead is
large, but the tools and assistance available to small businesses are few or
non-existent while the burdens keep growing.

It is all too often the case
that policies designed to help small businesses fall short of their objectives
or that other policies fall too onerously on them in their implementation.
Although there are many reasons for this, one of the key factors is the lack of
an adequate understanding of the activities and challenges faced by small
businesses.

In particular, Governments seem incapable of understanding
the difference between a small-unincorporated business and a small-incorporated
(Ltd) company on one side and the difference between a small incorporated
company and a larger incorporated company. The general lack of appreciation of
the sector’s unique characteristics results in the design of policies that
become largely ineffective in their implementation or generate a restrictive
level of bureaucracy. If government policies are to be effective, then policy
makers must develop a fuller understanding of the true nature of small
businesses.

3 Conclusion

GRTU today actively support a wide
cross-section of policies and initiatives at a Pan European level. Together with
other national organisations representing small businesses in the 25 member
states of the EU, GRTU is active in insuring that the Agenda for
entrepreneurship endorsed by the SME Summit in Luxembourg on 22nd April 2004 is
implemented by the government of the member states. We are holding our seat to
the ground. We are proposing an agenda for every year, over the next five years
that we expect government to implement.

In Malta, GRTU is going to ensure
that the new Prime Minister and his cabinet of ministers will implement the
agenda for entrepreneurship. It is the only way forward. And Malta cannot afford
to look back, or lose out.

 

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