Issue link: https://maltatoday.uberflip.com/i/1382687
9 maltatoday | SUNDAY • 13 JUNE 2021 INTERVIEW for our state of development But obviously, there were excep- tions. Those sectors which were in any way connected to tourism – the ones which depend on in- creased consumption during the tourist season – those felt the im- pact. And the same goes for the entertainment sector; catering… and also retail. Shops remained closed for months... Those sectors were certainly af- fected; and they depended on the wage supplements to a large de- gree. Now, we have to wait and see what will happen when that assis- tance begins to be scaled back. Be- cause it is inevitable that it will be reduced, sooner or later. It cannot carry on forever… So far, you seem somewhat unconvinced that the Mal- tese economy will recover its rhythm from the pre-Covid days. Could this uncertainty also be because the country is now entering election mode… and traditionally, this has an impact on the economy? Let's put it this way: right now, we are passing through a time of many different uncertainties. There is all the uncertainty asso- ciated with Covid-19; there is al- so uncertainty because of the fact that people are still receiving the wage supplement, and we do not know what will happen when this is eventually reduced. Will there be disruptions in the job market? Will employees start looking for pastures new? Will employers start asking themselves: do I re- ally need to employ all these peo- ple, in a sector where the busi- ness patters have substantially changed…? And yes: added to all that, there is also the prospect of an election at some point in the next year. In Malta, elections always bring with them a certain level of un- certainty: because people have a tendency to wait and see, not only 'who wins'… but also, what sort of policy changes will arise from the winning electoral manifesto. This happens, to some degree, with every election. Meanwhile, regular reports by international credit ratings all give a generally favourable as- sessment of Malta's economic prospects; but they also warn about certain factors which might undermine econom- ic growth in future. What are these factors, exactly? One of the more long-term problems facing Malta at the mo- ment, is the issue of tax harmoni- sation… … in fact, there has just been an agreement at G7 level… Yes. And while the initiative itself is still in its early stages… the real problem is that we don't know how long we can realistical- ly continue to resist it. That is the reality… There are, however, other countries which also resisting it; and there is still the possibil- ity that the Council of Ministers might block it, at EU level… That is the hope of many, mostly small countries; because the truth is that tax harmonisation is… not in their own interest, quite frank- ly. Why? Because in reality, the taxation system is the only thing that remains, for an EU member state to balance out whatever oth- er disadvantages it might have. To take Malta as an example: the local market is, as we all know, ti- ny. Transport costs are obviously higher here, than for countries on the mainland. The time it takes for a consignment to arrive – be- cause it's a 'multi-modal' network: by sea, over land, etc. – is invaria- bly longer, too. And these are all disadvantages that make it difficult for us to at- tract foreign investment. So the investors have to be somehow compensated… But many of the companies paying favourable tax-rates are service companies that don't have to incur those costs. And besides: is it fair that a multi- national corporation – based in Malta, or anywhere else – gets to pay only 5%, while local in- dustries pay so much more? I think we need to make a dis- tinction between companies and sectors that have a permanent establishment in Malta; the ones that are really investing here, and making a real difference… and again, manufacturing is a good example. We have a lot of FDIs in that sector; and one of the reasons they came here, is precisely the fact that we offer advantageous tax rates. Now: for this type of operator, it is perfectly justifiable that they would have to somehow coun- terbalance all the disadvantages of relocating to such a peripheral island. But when it comes to fi- nancial services, for instance… there, matters do get slightly more complicated. On that level, I think that – as a country – we are still a little too much in our 'comfort zone'. We cannot continue relying only on our advantageous taxation sys- tem, to attract a certain type of activity in the financial services sector… Coming back to the positive economic outlook: Malta has undeniably enjoyed a period of industrial stability. At the same time, however, there is a sensa- tion that the gap between rich and poor is on the increase; that it is only the few who have truly benefitted from economic growth. Does this growing ine- quality concern you? When you're in business, the one thing you want is for every- body's purchasing power to in- crease. Because at the end of the day, your market is the entire population: and if there are sec- tors which can afford to pur- chase, and others which can't… then your market, which is al- ready small to begin with, will only get smaller. As for the inequality gap itself, however: it depends how you look at things. Today, the situa- tion has changed a lot, from the days when we talked of 'upper' and 'lower' classes. It also de- pends on which sector you are operating in. For instance: we experienced a phenomenon, in this country, in the rental market. Anyone who had a room to rent, found an alternative source of in- come… Not everyone owns property, though… Not everyone benefitted, nat- urally. But I do think that the way the property market has developed, also changed the way wealth is generally distributed among the population. And this is one of the reasons why pol- iticians find it difficult to take certain decisions affecting the property sector. Because a lot of people have invested in it. Naturally, there are those whose investments are limited to 'rent- ing a flat'… and those who have built entire villages. And there's a difference. But there were many different segments of society that benefit- ted from the rental market, in a way that improved their quality of life… But what about material pover- ty, however? Don't you agree that there is a growing segment of materially deprived, vulner- able people who are – among other things – easy prey for ex- ploitation? That segment certainly does ex- ist, and we obviously cannot just discard those people, either. We also have a very robust Welfare State, for that very reason… I can't agree with you there: sta- tistics show that, compared to other Eu states – including the eastern ones – our welfare state is actually under-resourced. It is for this reason, incidentally, that there is a drive for tax harmoni- sation: taxation is also an invest- ment in the welfare state… Again, it depends how you look at things. Malta, for instance, ac- tually has the lowest percentage of people on minimum wage in the EU: only 3%. And the minimum wage itself compares favourably to other countries which have similar standards of living. Obvi- ously, you can't compare with a country like Germany or Sweden; but Slovenia, Portugal, Spain… we are on the same level, more or less. Even if the GDP per capita, in those countries, is much high- er than ours. Then, there are Eastern Europe- an countries where the minimum wage is lower than here… But I don't think we're using the right yardstick here. Do you know what Malta's main problem is? The cost of living is too high, for the level of development we are currently at. When you fac- tor in the cost of housing – and rent: that same phenomenon I described earlier… it's a blade that cuts both ways. Compare the cost of rent to the average salary; and that's where the problem can be seen. And it is also why we are finding it so difficult, to hold on to foreign workers…