Issue link: https://maltatoday.uberflip.com/i/1479650
8 NEWS 22.9.2022 The revered monarch is laid to rest George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island O n Monday, Queen Eliz- abeth II's coffin was lowered into the Roy- al Vault at St George's Chapel in Windsor Castle, bringing to an end a 10-day public mourn- ing period for Britain's long- est-reigning monarch. e last chants of "God save the Queen" were heard as onlookers scat- tered flowers on the road, and muffled church bells rang in the distance. e "second Elizabethan age" was symbolically brought to a close with the monarch having been 70 years on the throne giv- en a warm farewell in the UK. Commoners watched as digni- taries from all over the world paid their respects and attended receptions. Surely, it is a meas- ure of her success. King Charles III begins his reign amid strife in Britain, populism in the West and a challenge to democratic systems led by China and Rus- sia, the legacy by HRH Eliza- beth II bears examination. Immediately, following the fu- neral service, there is an imme- diate test for the newly appoint- ed prime minister Liz Truss. She faces a cost-of-living crisis. is is quite a formidable chal- lenge and there has been severe criticism from various quarters on how best to revive the British economy. Ms Truss has swiftly ditched her campaign stance of opposing "handouts" and is guaranteeing to cap average annual household energy bills. She promised businesses will get help, too. e price shock for households and firms in UK requires bold action as the Bank of England predicted a reces- sion next year. But pragmatism need not mean reckless abandonment of free-market principles and fis- cal responsibility. It would be better to offer consumers a big rebate rather than mute price signals altogether through a cap. e plan will initially be funded through borrowing, a splurge that will force the country to raise interest rates even higher. e risk is that Ms Truss's for- mula will depend too much on a mixture of tax cuts, and de- regulation. Ms Truss seems to be betting that headline tax cuts will lead to higher growth, when the evidence is ambiguous at best. Now that the pandemic has ebbed, many had expected a reprieve from more belt tight- ening. Instead, partly due to the Ukraine war and the explosion in oil and gas prices one expect- ed better. Some had hoped that the pent-up demand by Euro- peans who sacrificed leisure and travel during the two-year lockdowns and curfews will lead to a swift recovery. Economists generally use the term "pent-up demand" to de- scribe the general public's re- turn to consumerism following a period of decreased spending. e idea is that consumers tend to hold off making purchases during a pandemic, building up a backlog of demand that is un- leashed when signs of a recov- ery emerge. is is an optimistic view shared by many small and me- dium sized companies that have just sailed through a lockdown or a restrictive curfew which saw their revenues drop consid- erably. e furlough schemes may have felt like a sick patient be- ing fed nutrients through a drip bottle leaving it with little ener- gy to wake up and start func- tioning in a normal way. Close to home, we read the commentary issued by the Cen- tral Bank of Malta confirming a contraction of 8.2% in 2020, in gross domestic product (GDP). Boldly, it predicts that there will be a rebound this year and is ex- pecting a healthy 5.5% growth over 2021 and 4.7% in 2023. Certainly, nothing like the stellar growth reached in the "l-Aqwa Zmien" years so cher- ished by party apologists under the dreamlike Joseph Muscat administration. One may ask, what contributed to this sudden economic contraction other than the decimation of the tour- ist sector matched with declin- ing net exports. Many point to a disruption in the global supply chain. What was seen as the Cinder- ella factor is a severe drop in do- mestic demand. Politicians tend to underplay the importance of local demand when they seek to placate the worried elector- ate that their jobs are on line. e main trust of the present Abela administration was the maintenance of low unemploy- ment and supplementing of a controlled wage subsidy (lat- est Labour Force survey shows over 9,000 unemployed). e furlough scheme was adminis- tered by Malta Enterprise and we heard frequent adulations that there were 100,000 (almost 50% of non-state employees) as- sisted by the scheme. Definitely, as employers were subsidized under the scheme there were fewer layoffs al- though as can be seen later in this article there were segments such as retail and small man- ufacturing which faced acute cash flow shortage and laid off workers. Again, in the case of employ- ees which survived solely on re- ceiving the furlough rate (since employers had no income) it is debatable if JobsPlus should treat such workers as gainfully employed. Back to the issue of subdued domestic demand, an improvement can be compared to a fulcrum that is expected to positively start an economic Re- naissance. is could be a dream come true. It is obvious that for a na- tion with no natural resources, we all concur that our unique cohort of workers have to be trained to reach a higher level of prowess. During the lull in productive activity caused dur- ing the 16 months of pandemic, it was our duty to reap full ad- vantage of idle time and use this for training of workers (there is little evidence of this such effort given that only 20% students passed the Maths "O" level). For many years, we had fi- nance ministers promising us to give top priority to further education. Since Independence, we clamour for a higher cohort of trained workers with skills involving science, technology, engineering and maths (STEM) yet facts show that we have not yet achieved our targets in high- er technical education. In the past four years there have been resignations in the ministry of education with four new ministers. It is true, that we invest millions in education from kindergarten to tertiary levels yet we still have some way to go to solve the skill mismatch in particular sectors. To conclude, there are a num- ber of indicators that the econ- omy can only flourish once the fundamentals are in place and herd immunity is achieved by end of the year. We can never underestimate the importance of maintaining social equality since wealth distribution during the past year has taken a turn for the worst. e passing away of the much- loved British monarch may em- bolden us to face tough local economic conditions next year.