‘Managing success is not easy’, Scicluna tells stakeholders at pre-budget business breakfast

‘Managing success is not easy’, Scicluna tells stakeholders at pre-budget business breakfast

managing success is not easy scicluna tells stakeholders at pre budget business breakfast - ‘Managing success is not easy’, Scicluna tells stakeholders at pre-budget business breakfast

Finance Minister Edward Scicluna spoke of the importance of managing success, telling stakeholders at a pre-budget business breakfast that this is not easy and that if this phase is not handled well, “it will be the beginning of the end”.

Scicluna said that the country is at a stage where it has attained economic success when compared to its peers in the European Union, but now must face questions on issues which had, as such, always been there but had until recently been concealed by greater ones.

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A lot of effort had been made by the government over the past five to six years to “get the wheel turning again”, Scicluna said, before noting that now that the situation with regards to certain core economic issues has improved and is still improving, other matters – which had always been there – are coming more to the forefront.

In this sense, he said, the government has entered a new phase where it must manage its success.  He said that there is momentum in the economy, and that everyone wants it to last as long as possible.  He noted that that it should be “straightforward” to sustain this momentum if level-headedness and proper planning is employed in policymaking and budgeting.

The pre-budget document was presented by Scicluna last week, with the theme being ‘Sustaining Inclusive Growth’.  Announcing the document, Scicluna had said that special focus will be given to the elderly and to healthcare, while also noting that economic prosperity allows the government to continue to commit to policies that ensure greater social justice. 

International scene has reached “worst case scenario” – Scicluna

Setting the context for his pre-budget document presentation, Scicluna noted that the international scene had reached what was initially thought to be the “worst case scenario”.

He noted three global problems which have been exacerbating themselves over the past years and continue to do so: trade wars and protectionism, brexit, and the rise of populism. He said in the former case, the United States was drifting further towards protectionist policies by introducing tariffs on countries such as China and Canada.  He said that these were having an effect on a global scale.

In terms of Brexit, he said that nobody had expected the situation to come to the point where the United Kingdom will leave the European Union without a deal on the basis that the cons of it totally outweighed the pros.  And yet, he noted, that seems to be increasingly the only option for the UK unless it goes for a snap general election.

Populism, he said, has also continued to rise, with people displaying their anger at situations for which there aren’t necessarily any simple solutions for – such as migration, the environment, and world trade – by “doing stupid things” and voting for populists who present only words but no solutions. He cited recent regional elections in Germany, which have seen a rise in votes for the right-wing Alternative for Germany (AfD) party, as an example of this.

At a European Union level, Scicluna said that he expected “renewed vigour” to carry out the Union’s programmes, the Union to take a more politically assertive stand on the world stage, and a Union with climate change and green finance policies at its heart.  

Government debt-to-GDP-ratio predicted to drop to 33.1% by 2022

The government debt-to-GDP-ratio is predicted to drop to 33.1% by 2022, having started off at a peak of 70.2% in 2011, analysis presented by Scicluna showed.  The current government debt-to-GDP-ratio stands at 46%.

This rate of decline and low ratio is a source of relief for the finance ministry and its plans for future fiscal management, Scicluna said.

The country’s potential economic growth rate will diminish marginally to 5.1% in 2020, compared to 5.4% in 2019, 6.1% in 2018, and 6.9% in 2017 and 2016. This statistic takes into account man hours, total factor productivity, and capital accumulation.  He said that any growth above 4% should see Malta continue to converge towards the EU average.

Investment will remain a big contributing factor to the country’s GDP, and Scicluna said that it is predicted to contribute to 21% of the GDP in 2019.  The General Government Balance meanwhile will remain in the black for the foreseeable future.  Scicluna said that this surplus is a symbol that the government is working within its means and that this is proof that the surplus is not coming only from the proceeds of the Individual Investor Programme.

The volume of the country’s exports as a percentage of global trade has declined when it comes to manufacturing due to the growth of the goods industry in China and the Far East, but this has been made up for by a growth in the export global market share in the services industry.

Labour participation rate finally exceeds EU average for the first time

Scicluna noted with satisfaction that Malta’s overall labour participation rate had, at 74.2%, exceeded the European Union average, which stands at 73.7%, for the first time.

Though the female participation rate is still below the EU average rate, it has increased from 48.9% in 2012 to 63.1% in 2018 and continues to rise, Scicluna remarked. Malta’s male participation rate meanwhile exceeds the corresponding EU average by 5.3%.

Similar patterns were seen in terms of real labour productivity, with Scicluna noting that productivity per hour has increased to a level which is above the EU average, in turn allowing for wages to increase without a subsequent loss of competitiveness.

Government must continue “chipping away” at poverty levels

Scicluna noted that questions had been raised about the way in which the country’s success was being distributed by the people.  He said that people have criticised the government by saying that poverty still exists and that this contrasts with the government’s economic successes.

He said that poverty does still indeed exist, but noted that the effect that the government’s policies have had need to be measured.  He said that Malta’s percentage of families at risk of poverty or social exclusion has been declining since 2013 and that it is now less than the European Union average.

That rate currently stands at 19%. Scicluna said that 19% is not zero, and that therefore the government must continue working on policies to keep “chipping away” at that percentage.

New Financial Organised Crime Agency to be set up by end of 2020

Scicluna said that he had been taken to task for a remark he had passed on money laundering, where he said that this crime happens in every country. He repeated that this is the truth and that banks and countries are progressively discovering the scale of the money laundering that has been taking place over the years.

He explained that this does not mean that nothing can be done.  He said that the government will soon receive the Moneyval Report which will hold a number of recommendations, all of which will be taken into the government’s stride and worked on. 

30% of the 48 actions which were indicated in the National Strategic Action Plan have also been implemented, while a new Financial Organised Crime Agency will be set up by the end of 2020 purposely to deal with crimes of high level sophistication and to prosecute them themselves.

Stakeholders raise questions on population increase, equality, taxation

Various stakeholders present at the business breakfast brought forth a variety of pressing concerns.

MHRA’s Tony Zahra brought up the effect of the recent population influx on the country, questioning whether it is sustainable, and also mentioned the disadvantage in taxation that Maltese companies face when competing with foreign ones.

Commissioner for Equality Renee Laiviera noted that equality and poverty go hand in hand and asked for more support for minority groups – especially women – to ensure that they are raised to a more independent economic level.

Air Malta’s Charles Mangion questioned what measures were being implemented to make sure that the country deals with the negative global scenario, and asked whether the stringent regulatory reforms being implemented in Malta are also being implemented by other European counterparts.  He also said that Malta does not seem to have a “roadmap” on how to deal with the current population influx, and questioned whether it is necessary to import workers from abroad when investment in Artificial Intelligence and other technologies could help keep the current economic growth sustained.

Martin Debono from the BICC noted that more holistic planning was needed for the way forward in the building industry, and queried whether a budgetary measure to explore this could be adopted.  The MDA’s Sandro Chetcuti called for the momentum and enthusiasm from the past years to continue while also expressing concern on the construction waste situation that developers are facing. Father Edgar Busuttil from the Civil Society Committee spoke of the need for more resources to help those who finish school without developing the necessary skills required to join the workforce.

In response to these queries, Scicluna noted that the carrying capacity of the country is not elastic, but that planning is a strong component of it, saying that with good planning, more can look like less. He expressed caution when speaking about the removal or total change of Malta’s taxation system, saying that one can look at a “plan B” but its implications and repercussions have to be studied in depth before making sweeping remarks.  

Finally, he called for the public and private sector to put their heads together and discuss the challenges that the country is currently facing, with the intention of overcoming them.

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