SME Chamber

Vince Farrugia at the Business Weekly Breakfast

I don’t know whether there is still anyone who knows anything
about business and economics who still believes that this country is not in an
economic mess. It is a mess for which a whole generation of politicians and
public administrators are responsible. They, with the support of some Trade
Union Leaders, love to accuse traders, employers and the self-employed, that
most of the trouble has been caused by Maltese entrepreneurs but the truth holds
that those in charge messed it up due to two main reasons:
  • an inability
    to understand basic economic concepts coupled with an obstinate belief that they
    can cause the economy to dance to their tune

    an arrogance that drives them
    to belief that once in power they can dispense with taxpayers money at will
    irrespective of the economic impactWe know now what the result is: Malta
    has the third worse public debt as a ratio of GDP situation of all the 25 member
    states of the European Union.

By 2012 a 101% of GDP will be needed to meet our
national debt.The solutions cannot be placed at the door of any one
particular sector of the community. The Trade Unions are right in saying that
workers should not be the ones to meet the bill on their own. Prof Edward
Scicluna told us that according to trends from the last decade and a half the
unemployment rate is not expected to fall unless Malta’s rate of economic growth
exceeds the 5.5% level. Unless GDP growth consistently surpasses 5.5% annually,
unemployment would continue to grow. Economically this means that without a
Wages Policy that effectively makes our main resource – Labour more
competitively priced, increased days of work, increased productivity,
containment of wage increases – our exports and our tourism cannot grow
sufficiently to move the economy towards and beyond the 5.5% growth rate.
Without this level of growth rate the entrepreneurs I represent who almost in
their totality dependent on the advance of the domestic economy cannot possibly
be expected to grow and have enough money to spare not only to increase new
employment, but pay their past debts, and invest in you projects that help us
all grow further. .
What all this really means is that the Social
Partners should continue to press on a vibrant courageous Wages Policy but not
alone as the only acceptable remedial tool. I understand why Trade Unions are up
in arms against this Budget and why they created so much opposition at MCESD to
the Employers proposals for the Social Pact. However, the Social Partners were
forced to concentrate on Wages Policy as the only remedial tool at MCESD since
the main Partner, government refused to seriously consider the use of other
economic tools in conjunction with Wages Policy. Wages Policy means mainly the
increase of productive days of work and increased labour productivity and
control of wage increases. All my efforts at MCESD to try to convince my
colleagues that insisting only on Wages Policy is short sighted as it leads to
intensified strife which will eat away any benefit of Wage Policy action, fell
on deaf ears.

A competitive Wages Policy will definitely boost economic
growth. But other tools can get the necessary boost too if operated diligently.
Our leading economists list these tools that can be effectively utilized to
correct economic situations like ours. Tools that can be used independently or
better still as a package:
ï‚· Wages Policy
ï‚· Exchange rate Policy
ï‚· Bank
ï‚· Fiscal Policy
o Reduction of public expenditure
o Reducing the
tax burdens
ï‚· Administrative policy
o Reducing bureaucracy
o Enterprise

Does this mean that I am proposing devaluation, a sharp decrease
in bank interest rates or a drastic cut in public expenditure or a heavy drop in
taxation levels? I definitely am not proposing the politicization of the
devaluation argument. I am simply saying that it was a mistake of government to
state a priori no to changes to the exchange rate and changes to Bank

The situation that we have now is not different from that we paced
before the Budget Speech was announced. The Budget is in the right direction but
definitely not enough. The targets in the governments Convergence Plan are not
enough. We will be hear next year debating the same issue but with greater
urgency. Trade Unions are making a huge mistake in losing this great opportunity
to put our economy in order. Government is weak kneed. Its budget proposals do
not go far enough. This is no employers budget, This is no entrepreneurs budget.
There is no investor out there who is going to feel better as a result of this

This budget will not be encouraging an new investment. Indeed
while I speak investors are seriously thinking how to cut their losses and not
how to grow. This country should be enterprise driven as it s the private sector
that provides the jobs that sustain our standard of living. Yet it is trade
union and regulation driven. A enterprise driven . A s long as the majority of
the Maltese want it this way a government of whatever shade and colour will
continue to be soft. But economies have a habit of correcting themselves without
the need of governments.

Their remedies are unemployment and falling of
standards for all leading to enforced competitiveness. Is this what we want? Is
there anyone out there willing to accept responsibility when this happens? The
solution is a serious Social Pact with no bars to effective action. Employers
will not however be part of Pact that says a lot a does nothing just for the
sake of having a Pact. And we are not for turning. We want to be part of a pact
containing serious measurable solutions. But otherwise we have too many problems
to face to sustain the level of investments that private entrepreneurs have
placed in this country to bother to waste more time on social dialoging that
leads nowhere.

It’s in the nature of entrepreneurs to lead to a better
future not to staleness and depression. This country needs leadership. It is up
to us employers, trade unionists and government to give it. As of now we are
failing. But the country expects it even though the public is hoodwinked to
believe differently. History will not forgive us if we


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