Fabian Demicoli

When enough is enough

With economic prospects for small businesses looking rather bleak, Vince Farrugia, director general of the Chamber for Small and Medium Enterprises (GRTU) does not mince his words when he says that “this is an educated government that does a lot of hearing but very little listening

Lamenting about the bureaucracy that has inundated small businesses with reams of paperwork, Farrugia says that ministers are being led by their underlings. He insists the time is now ripe for Prime Minister Lawrence Gonzi to conduct a cabinet reshuffle to institute his own team.Small businesses are crying out for concrete action to be taken to alleviate some of the government-induced costs Farrugia says, and yet while ministers listen politely to what the GRTU has to say, suggestions for change are shelved by faceless bureaucrats more intent on serving Brussels than the Maltese taxpayer.
On the first anniversary of Malta’s EU accession you asked the Prime Minister to change ‘policy’ and ‘most of all faces’. Why are you calling for a cabinet reshuffle?
Lawrence Gonzi, at this particular stage, is the best of the crop in Parliament. From the complaints I get from most of GRTU’s members, there are hardly three people in Parliament with whom you can make a decent economic argument. One of the problems facing the country today is that the system does not appreciate the economic ills hounding the country. Whatever the issue at stake, the bottom line is money. If the economy takes off we can start solving the deficit, we can start taking care of our roads and the environment.
Had Lawrence Gonzi created a revolution last year when he took over as Prime Minister it would have been premature and very presumptuous of him since his only experience in government until then was that of social policy minister, not a department directly linked to the economy.
In foreign affairs he was weak and needed to learn the ropes. In my view it was positive of him to take charge of finances because it helped him learn how they operate because a Prime Minister who is weak in finances will remain hobbled throughout the legislature. He also had to understand from closer range the abilities of the people around him. Gonzi also had to understand the structures sustaining Malta’s European membership. Until last year the people administering EU membership were not under Gonzi’s hands. They were answerable to Richard Cachia Caruana, who still seems to be in command. Gonzi needed another year to understand the intricacies of the European Union.
Today, a year after, Gonzi can now form his own team. The current team is not his. There are some who are capable, others who are tired and those whose vision is still that pertaining to the Fenech Adami era – a vision that stopped with EU membership.
Lawrence Gonzi has to seek those coming up the ranks of the Nationalist Party and who have ambition and possibly include in his government people from outside the party and Parliament. Gonzi can inject a new lease of life in this country’s administration and now is the time to do it.
The GRTU had an influential role in tipping the scales in favour of EU membership when it declared its position publicly. Similarly in 1996 the GRTU was influential in returning a Labour government. From where does this influence stem?
Our people, bar owners, retailers, contractors, restaurateurs and others operating small and not-so-small businesses, have shown for more than once that they can influence public opinion. A retailer constantly meeting people on a daily basis has much more influence on the electorate than somebody who spends most of his time at home.
This is something that was underestimated during the EU referendum when we decided in favour of Europe. We did not favour membership because it was absolutely right but when compared with the alternative it was the better option.
We are organised on a national level, district level and on street level. I can know what the situation in Zejtun is through a simple telephone call. When we activate our system, and politicians know this, it is alive. Our system is not always united. Unity occurs when there is an overriding issue that hits everybody and if I were to interpret the messages reaching me today, the single most important message is ‘do something because this government is not listening’. Small businesses cannot have it anymore.
If small businesses are crying out for some action and yet you claim Parliament has only a handful of people who understand how the economy works, what solution do you see in sight?
I used the word listening because it is the correct word. We do have consultation. I, Vince Farrugia, on behalf of the GRTU am on a number of boards and trust me I do my best wherever I can. There are other GRTU members who are spending a lot of time on other boards. But at the end of the day we ask ourselves whether this is worth it because when the draft document on which we were consulted is eventually adopted it contains none of the changes we would have suggested.
Let’s take for example the document on consumer credit, which will soon be adopted. Even if there are EU directives, it does not mean we simply adopt legislation without discussing it and agreeing with the social partners concerned. They heard us, made some small changes and simply trudged on. I cannot criticise the Prime Minister because I am in constant touch with him. I email him once or twice a week, but when the message is delivered it simply fizzles out.
This is a bureaucracy-led government. Apart from the very few ministers who show leadership the rest are not in the driving seat. They simply rely on bureaucrats who interpret EU legislation to the letter, leaving politicians with little or no discretion to intervene so that what is discussed with social partners is included in the legislation.
They are caretakers.
Bureaucracy seems to be a favourite punching bag for the social partners. Why is it so big a problem?
Compared to two years ago, a simple bar owner today has to manage volumes of paper work, is subjected to countless inspections and is constrained to fill in numerous forms. You cannot imagine the bureaucracy that has piled on small businesses. But nobody seems to care and they even lie.
When I spoke to the Prime Minister or a minister on certain issues and they assured me they were not going to implement something as planned, it was to no avail. One such example was the smoking issue. Things could have been done differently without making people go crazy. What was not done in 50 years need not be implemented in six months, it could have taken a longer period.
We could have waited for such a ban to be introduced through an EU directive therefore eligible for assistance.
Government could have brought the importers of air conditioners together and enticed them to import air purifying systems during the leaner winter months. Through the vote for small enterprises under Malta Enterprise, businesses could have been helped to start installing such systems. This way, over a longer period I could have turned to my people and told them that the smoking ban was a correct measure because people wanted it. As things developed the licence was devalued because suddenly smokers became unwelcome clients and businesses were left to shoulder the burden of compliance.
Small outlets could have installed air-purifying systems without the obligation to build smoking rooms. The air would not have been 100 per cent pure but is the air in the street 100 per cent pure, given all those carcinogenic fumes coming out from car exhaust?
Outlets could have also been given the choice of choosing whether they wanted to be smoking or non-smoking bars.
For the personal prestige of a politician or a civil servant, who wants to appear nice in Brussels, my people out there are crucified. He is taking my people up to court for not policing the ban as if it is a bar owner’s role to police clients. It even goes against economic logic for a bar owner to ask clients to leave.
The main argument of the pro-EU lobbyists was that membership would help us introduce higher standards and possibly instil better discipline. Isn’t what you are saying a counter argument to the reasons for membership?
The GRTU is very active in EU structures and I know what happens elsewhere. To start with the regulations we have to absorb in a span of months were introduced over a 40-year period in most EU countries. But even in Germany, a country renowned for its discipline, there is a way of implementing regulations through an educational process that creates the demand for change.
Our civil service is incapable of implementing regulations via a staggered approach. Our civil servants are just interested in applying EU law at all costs.
A British friend of mine once told me these words: ‘Europe is good for you but watch out for something. Your people shouldn’t go to Brussels and become messengers of Brussels to your people. They must remain representatives of your people in Brussels.’
She was right because today our civil servants are just messengers.
The Prime Minister has called on society to be positive and yet you are grumbling?
I agree with the Prime Minister that we have to be positive. But when my people are wearing shoes made out of thorns that hurt at every movement they make, it takes a very strong positive spirit to keep on smiling at the risk of being labelled dumb.
There is no profitability in the retail trade. Profit margins have gone down or vanished completely and that will soon have an impact on income tax. The economy is not growing at all. The economy is moving backwards not forward. Our fiscal system is structured in such a way that government creams off more taxes when the economy is booming and less taxes when it is down. In this crazy country, the contrary is happening. At a time when the economy is down Government is whipping everybody for past sins in a bid to collect more taxes. We are not in a boom and yet entrepreneurs are being subjected to countless arrears whether these are electricity bills, licences or income tax. It takes two to tango. Why did the bureaucracy not pressure defaulting businesses to pay up during the boom period?
Government has found itself in difficulty to sustain the exaggerated number of employees on its books and is therefore trying to cream off the required cash from businesses. It is only a question of time before the services industry starts shedding jobs. The only reason why it has held on for so long is because most of them are small family concerns.
Bars, restaurants, workshops, retail outlets and other service providers are feeling the squeeze and in a couple of months time will not only scream but react by shedding jobs.
I want to be more of a chamber focussed on facilitating small businesses, offering training and promoting education. I don’t want to stamp my feet to get things done but they cause you to do that. This is an educated government that hears you but lacks the nerve to implement changes suggested by organisations like mine.
What suggestions have you made that fell on deaf ears?
I am not one to grumble because all my training, my profession is that of a business developer. I promote business and I am full of ideas as are my people but when we come to present our ideas nobody wants to listen. That is why we end up grumbling.
Last year we presented government with a project. Small businesses need cash to operate. It does not mean they should not pay taxes but we asked for a deferred payment programme that would enable the individual to create a small capital fund. For example if a small businessman has sold a piece of land, if the money from that sale is put into the capital fund than Government would defer capital gains tax payment for five years. A minimum amount of income tax on profits, such as 10 per cent can be arranged and the resulting 25 per cent businesses would be allowed to invest in the capital fund. Government could also create an industry bond with attractive interest rates so that businesses can invest their capital fund. Government would utilise such bond money to help industry. At the end of a five-year period whatever the amount collected, a businessman knows that at least half of it is owed to Government but he must be given the option to either invest it to expand or improve the business or else Government will take its share.
We have been harping on this for three years. They did give a tax advantage to small businesses but the conditions laid down meant that nobody or very few benefited from such a measure.
What is your opinion on the investment registration scheme?
There are people who did not declare their income and transferred those funds abroad but there were others who did not declare earnings and kept that money in the economy. If Government decided to close an eye to irregular investments abroad it should have also given the chance to those who kept their money in the domestic market.
As things stand those who broke two laws – foreign exchange control and income tax evasion – have been given the chance to recuperate.
Are such amnesties fair?
We do not promote amnesties because they deliver the wrong message to honest taxpaying businessmen.
Is the property market a bubble waiting to explode?
Property has always been the safety valve for small businesses but look at what is happening to the market. The number of new properties on the market has increased dramatically. With 70 per cent of Maltese households owning their own house there is a limit to how much new properties Maltese individuals can buy.
Foreigners out there have a perception that this country is against foreigners buying property because of the derogation negotiated with the EU. It’s incomprehensible how countries such as Romania and Croatia are trying to attract foreign property buyers while here we imposed restrictions.
Unfortunately the construction industry is heading straight into an unsustainable situation. If that safety valve explodes this country will face serious problems.
The whole construction chain is financed through loans issued by our banks. The final payer is the buyer through another bank loan. If suddenly the floor beneath the developer collapses because of a glut on the market which will force prices down, than the whole system can come crashing down because banks will foreclose.
Should Bank of Valletta remain a Maltese bank?
The nationality of assets has no economic value. Who owns the financial institutions in London today? Does it really matter for the standard of economic operations or the quality of life in London, who owns such institutions?
The principles of good business management are not coloured by nationality. If on the other hand we have the intention of running a bank not on commercial criteria and neglecting good business practice, will the bank survive?
Among most people I represent there is a general sympathy towards retaining the Maltese character of Bank of Valletta. But as an economist I wouldn’t emphasise too much the nationality of our economic assets.
Today, is there a political party that represents the aspirations of the self employed?
No. We have two competing Labour parties. We have two parties happy to pander to the majority working class. I do not represent the majority since the majority are not entrepreneurs. The two political parties find it easy to be spendthrift with other people’s money rather than acting as guardians of other people’s money. If the majority of people who vote for you are workers it is very easy and comfortable to be generous with other people’s money.
There exists this fixation that business is a dirty word. This attitude is the primary reason why the social pact failed. Trade unions have not understood the economic situation and they came to the talks intent on taking rather than giving as if businesses are not feeling the squeeze.
We do not have a political party that is bluntly pro-business because they are scared to point out the deficiencies in the system and take appropriate action to address them. Abroad there are political parties that are significantly pro-business because they believe in the entrepreneurial spirit that fuels the economy. The self-employed have the ability to create wealth which will in turn benefit society as a whole.
Vince Farrugia was interviewed by Kurt Sansone

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