Issue link: https://maltatoday.uberflip.com/i/1302895
14 maltatoday | SUNDAY • 25 OCTOBER 2020 OPINION Setting direction towards a digital economy A sustainable Malta, a living vision THE Budget 2021 announced last Monday clearly sets two main ob- jectives: to address the economic and social effects of COVID-19 and to provide direction for a more re- silient, more productive and more sustainable economy that can support government's social pro- gramme and its ambitious econom- ic targets with digitalisation and the Green Deal as the main pillars of a more resilient and more pro- ductive economic model. Digitalisation, and the strate- gy being developed, will be key to achieving government's economic targets. The structure of the Mal- tese economy is changing fast, and there is an increasing shift in em- phasis away from physical capital to human capital. The aftermath of COVID-19 will accelerate this pro- cess, with the demand for labour for skilled and qualified personnel in the digital economy and other technical services likely to increase as the transition towards a more resilient and sustainable economy gathers pace. This change will bring about changes in the content of jobs themselves with more emphasis on digital skills and competencies. Al- ready, digital technology is trans- forming everything from hospital- ity and banking, to healthcare and e-commerce, but more needs to be done for all economic sectors to fully embrace digitalisation and its many advantages. Hence the relevance of the digi- talisation strategy, as mentioned in the Budget 2021. One of the aims of this strategy is to boost job creation and career prospects for Malta's workforce. Job creation in fast-growing, knowledge-intensive sectors is the future of our labour market, and individual productivity growth is more likely to occur if our busi- nesses exploit the benefits of digi- talisation. For businesses, boosting produc- tivity is crucial, and is a key to their competitiveness. Digitalisation provides the platform for boost- ing productivity, and productivity growth means that costs rise more slowly, price competitiveness and payroll capacity improve, and jobs become more secure (and hence more desirable). As more added value is achieved, profitability im- proves, business growth become possible, and the ground is laid for investment and the further devel- opment of business activities. In a fast-changing environment, the role of government in develop- ing supportive policies for a digital economy is critical. We are fully aware of our responsibility to pro- mote an environment within which the private sector can flourish. At the same time we are provid- ing the stability and predictability in terms of policy in such an impor- tant area of our economy. We do this also fully aware of the socio-economic benefits of en- hanced investment in the digital economy. Though government's role is and will remain crucial, it is the private sector that will drive this digital transformation. Private sector in- vestment in digital infrastructure is not new. However, the scale of the investment required to support a more resilient and productive economic model is huge as are the myriad opportunities arising from digitalisation. We cannot discount investment from overseas either. Foreign direct investment already accounts for a sizeable proportion of investment in our economy but digitalisation will offer further opportunity for foreign investment. The digital economy offers huge advantages in terms of business ef- ficiency, economic resilience and ubiquity of access for all citizens. This will not happen overnight and the transition will take its course. However, in the Budget 2021, this government has clearly its long-term commitment to lay the groundwork and to support the transition towards a digital econ- omy. This is fundamental to our politi- cal vision for a more vibrant econo- my that aims for a more prosperous future for its people. THE budget for the upcoming financial year 2021 is based on five principles: governance, economic growth for a better quality of life, education to sustain the economy in the long run, improving infrastructure and making Malta carbon-neutral by 2050. These five principles are built upon a strong pillar of social development. This govern- ment understands that repairing the econom- ic aspects of our country requires addressing first the social needs of its citizens for a more equitable distribution of economic benefits. Equitable growth is not only more sustain- able, as it leads to less adjustment costs, but it also realises further the inherent potential of each citizen. Malta, as an island state, also needs a robust and resilient economy. Resilience is primarily built by having an economy based on sectors that are not correlated with each other; de- pending on different factors, and therefore a negative impact in one sector is offset against a positive effect in another. We have seen extensive diversification take place steadily in recent years, with the devel- opment of sectors such as financial servic- es, gaming and other niches. But especially throughout COVID we can still see how much Malta, and more so Gozo, still depend on the tourism sector. The fact also remains that Malta is part of a globalised world and therefore foreign in- vestment, including tourism, is affected by the performance of foreign economies and not only the Maltese economy; a factor we cannot control. To address all this, the government is pro- posing the strengthening of the existing val- ue-added sectors and substantial investment in the green and digital economy, including artificial intelligence, gaming, digital game development, space, Quantum, High-per- formance computing and blockchain among others. The resilience and increased competitive- ness of the emerging economy shall lead to fiscal sustainability, and the growth of the digital economy per se, translates into envi- ronmental sustainability. This is so as the infrastructural needs on which the digital economy are based are much lower than those of other sectors, which give the same added or less value. Thereby resources are used more rational- ly and effectively. In addition to these direct effects, the digital economy brings enabling effects on the environment, such as the use of ICT in Smart energy grids, buildings, trans- port, as well as systemic effects on the envi- ronment, for example more work. from home remotely led to less traffic and air pollution. For any investment in existing, and new, sectors to be feasible, investment must also be made in terms of human capital develop- ment. To this end for productivity growth the Government is proposing more investment in teaching and education that addresses the needs of the labour market, more emphasis on the health of the people and the worker, and further measures to strengthen access to the labour market. These recovery proposals are based on the principle that the business will continue to operate in this time of transition and that it will continue to have access to workers. In the same way, the confidence of the workers and that they will continue to work, is anoth- er key to the success of this plan. The extension, to March 2021 at minimum, of the COVID-wage supplement for those businesses affected by the pandemic, togeth- er with another year of tax refunds, an addi- tional day of vacation leave and the extension of the in-work benefit are all testaments to this strategic direction. When this peace of mind and security of income is coupled with other measures, such as the re-issuing of the €100 vouchers to every person above 16 years of age, workers can make sustained consumption and investment decisions, in support for a healthy economic demand-side. Therefore, the financial support that the government is giving, both to business and to the workers, is currently of great importance. Nonetheless, the government is to ensure that despite the support being offered the re- al economy continues to function and is not replicated with government spending alone. This path of assistance also brings the ex- pectations of the individual, and of busi- nesses, closer to the economic reality of the country and they do not delude themselves that the government can offer support for an infinite time. Gradually and as dependence on govern- ment begins to decline, government spend- ing will begin to stabilize, and taxes will begin to offer more revenue to government. This budget is the result of continuous and effective discussions with social partners, me- ticulous planning, and the fulfilment of the essential principle of economics of making the best use of limited resources. Given such financial restrictions, government has once again refrained from introducing new taxes and has opted instead for the further genera- tion of economic activity and the boosting of consumer confidence. Clayton Bartolo Clayton Bartolo is parliamentary secretary for digital services Carmelo Abela Carmelo Abela is minister within the Office of the Prime Minister