Issue link: https://maltatoday.uberflip.com/i/421389
maltatoday, SUNDAY, 23 NOVEMBER 2014 13 cluding Labour party activists "who are clearly telling this government that it's anything but Socialist." "For some people it's not enough to offer them training and educational programmes to elevate them from poverty and encourage them to join the labour force. You need to address other endemic problems on a social level." The biggest flaw in this budget, Fenech says, is the lack of a cohesive economic vision. "Previous budgets presented by the PN had a clear strategy, where we wanted to go and what our strategic targets were. Each and every one of our budgets pinpointed a number of new sectors, such as financial services, digital economy, creative economy, gaming and so on and we would outline incentives and meas- ures to strengthen new economic sectors. Where is the vision in this budget? It's all over the place. The first section is focused on address- ing dependency on welfare, but from then on it's a mess. It's a collection of ideas from Islamic banking to monu- ments and from students to sewage problems in Marsa." Fenech says that while headline figures show that the country's eco- nomic performance was moving in the right direction, especially the growing GDP and low unemploy- ment, he's concerned with the fact that 45% of GDP is generated by gov- ernment expenditure at a time when expenditure should be reduced and unemployment figures were aided by the increase in public sector jobs. "With the national debt rising above 70% of GDP we are simply not moving in the right direction. What we have is not sustainable and at one point it will dry up. And when public spending dries up what will replace it?" He says the solution does not sim- ply lie in public private partnerships, the country needs to attract long- term and productive investment from the private sector. Moreover, Fenech says the govern- ment's belief that the construction industry alone will act as a catalyst and drive the economy forward is ill fated. "This government believes that through construction alone the economy will stand on its feet." Isn't this what consecutive govern- ments have done, I ask. "No, we viewed construction as a complementary sector and not as the main driving force. It's use- less to build new apartments when we needed offices for the financial services sector. Se we encouraged developers to invest in offices. It will simply not work if we go back to the old model of building real estate in the hope that somebody will pur- chase them and pile pressure on the planning process," Fenech says, add- ing that this was already happening with planning permits being issued like hot cakes. Mega projects announced by this government, such as the White Rocks, the maritime hub and land reclamation have remained on the drawing board because they do not go beyond real estate, he says. Fenech says that he is reliably in- formed that the land reclamation project has stalled because local banks are reluctant to back investors because of their high-risk nature. "We need to attract investment which creates a product which is at- tractive in the long term and which has a high value added. The country needs to strengthen and attract for- eign and local investment in tourism, financial services, IT, manufacturing and new sectors such as the creative and digital industry to ensure that they remain and flourish." The budget includes an overhaul of the taxation system on the transfer of property, with sellers no longer being able to choose between paying 12% tax on the value of a sale or 35% on the gains they declare. The new system will see a discount for developers, who will pay 8% tax on the value of the property while in- dividuals who do not usually trade in property will pay just 6.5%. In the case of property acquired be- fore 2002, the tax payable will be cut from 12% to 10% of the sale. Fenech says this measure was intro- duced without a proper consultation process with notaries and account- ants and will lead to fiscal evasion. "Companies which do not exclu- sively deal in property development, will lose money while property spec- ulators will now be tempted to under declare the costs. I'm not surprised this measure was proposed by people close to the government who stand to gain." Fenech does however look favour- ably at the removal of the eco tax which many businesses blame for creating an unlevel playing field. Explaining that the tax was intro- duced just before he was appointed parliamentary secretary for finance, Fenech says it wasn't his "favourite tax" because it does not give a good return for the administrative efforts it requires. "It would have been better to invest the money in efforts to fight tax eva- sion or collect VAT," he says. Interview As PN finance minister, TONIO FENECH presented six consecutive budgets and according to the seasoned politician, his successor lacks the economic vision which characterised his own budgets middle class PHOTOGRAPHY BY RAY ATTARD