Dalli sees financial services growth through EU membership

Finance Minister John Dalli argued in parliament yesterday that the financial services centre would grow only if Malta joined the EU.

He also referred to criticism of "unscrupulous practices" by stockbrokers made on Monday by Labour MP Evarist Bartolo and observed that he had been the target of much criticism when he made similar criticism a few months ago.

Mr Dalli was concluding the debate on the Special Funds bill. The main purpose of the bill is to make it possible for retirement funds to be operated in Malta for foreigners. The bill also updates 11 financial laws and makes the Malta Financial Services Centre the sole regulator of the financial services sector. The MFSC is to become an authority.

At the beginning of his speech Mr Dalli referred to opposition criticism that doctors were not required to issue fiscal receipts. He said that fiscal receipts were not an intrinsic part of the Value Added Tax system but they were introduced to create a conscience of control by all.

The medical sector was exempt from VAT. Since doctors could not claim tax refunds, there was no need for fiscal receipts.

This was also the case with regard to the banks and insurance companies.

This had nothing to do with tax evasion. Indeed, the Tax Compliance Unit had established benchmarks and was speaking to doctors individually and investigating their tax declarations.

At the beginning of his speech Mr Dalli said it was not true that not enough consultations had been made before this bill was drawn up, as Mr Leo Brincat had said in the debate. Consultations had been thorough even during the actual drafting of the bill.

As for the questions asked by Mr Brincat on an interview given by MFSC chairman Professor Bannister, Mr Dalli said it was estimated that the financial services sector within 10 years would account for 22 per cent of GDP, from the present 12 per cent .

Mr Dalli said it was only people in fairyland who thought that if Malta stayed out of the EU, it could do whatever it liked . The world was developing in such a way that even the word "offshore" had become a bad word and offshore centres were losing their advantages. Malta had seen the gathering storm and had changed its system to onshore. It now enjoyed a good international reputation for seriousness and was seen as a model for other countries wishing to do the same.

If Malta stayed out of the EU it would not be able to benefit from the passport system used when products produced by Maltese firms were sold in the EU. So who would open a factory here when its products could not be sold in Europe?

Mr Dalli said this debate showed how it was the opposition which was obsessed by the EU.

This bill was aimed at introducing a new investment product, retirement funds, which had nothing to do with the EU.

Mr Dalli said that in most cases, such as in the case of banking and insurance, standards were set by international organisations which were then also adopted by the EU. When Malta adopted those international standards, it was also adopting the EU standards.

Mr Brincat had said that if Malta stayed out of the EU, it would be able to carve out its own niches of financial activity. But did anybody think that Malta could do something which could not be done somewhere else?

Practitioners were saying that upon accession, the financial regime Malta had would see them overflow with work. That would not be the case if Malta stayed outside the EU.

Those resisting the standards imposed internationally included Andorra, the Marshal Islands and Vanuatu, but Malta did not want to be like them but wanted to be considered a serious financial centre. That was why this sector was growing fast every day.

Mr Brincat had said that being a Switzerland in the Mediterranean rather than a member of the EU would give Malta the right and the opportunity to be different. But, Mr Dalli said, Malta would not be able to be different where it mattered, if it wanted to remain serious.

The minister observed that the opposition had said it would vote against this bill for two reasons - the term of office of the governor of the Central Bank and the transfer of responsibility for banking supervision to the Malta Financial Services Authority from the Central Bank.

With regard to the former, the bill said the governor would be appointed for not less than five years. That would be amended in committee stage to read "for five years."

The remaining issue, therefore, involved banking supervision. But, Mr Dalli insisted, this change was not being introduced by virtue of this law. It was provided for under the financial legislation package enacted in 1994. At the time the Opposition had said it was not happy with it, but it eventually voted in favour of those bills. Indeed a legal notice bringing the transfer of supervision into effect was published last January in terms of the 1994 law. It had not been published earlier because the MFSC had still been in the process of setting up and needed experience.

Mr Brincat had also argued that the bill did not say how the governor could be removed. But the bill also said that the governor was to be considered a director of the bank, and a procedure for the removal of directors was laid down.

Mr Dalli said that although the Central Bank was being made more autonomous, it would still be finally answerable to the government and parliament.

As for the independence of Central Bank directors, it was unfortunately next to impossible to find people who could serve as directors and be independent of anything else. The bill therefore provided that it would be the governor who would be responsible for the bank's monetary policy and he had to appear twice a year before a parliamentary committee to give a public account of such monetary policy.

Mr Dalli observed that Labour MP Evarist Bartolo, speaking on Monday, said that the financial service centre was being given more duties when it was not exercising its current duties well enough. He had also complained of "unscrupulous practices" by stockbrokers who were not properly advising their clients.

Mr Dalli said that when he had made similar complaints about some stockbrokers not giving proper advice all hell was let lose by the opposition and he was accused of harming the stock exchange and stock brokers in general. Now Mr Bartolo had said they were irresponsible and unscrupulous.

Mr Dalli said he would continue to make criticism when some people did not give financial advice as they should. He had not shirked from doing so publicly, even though at the time he had not found the backing of the opposition.

Those who had not heeded his comments six months ago had made bad investments. That was not his fault but the opposition's.

Mr Bartolo had almost given the impression that the MFSC was to blame because some people had lost money in Argentina. Yet much of the money invested in Argentina by Maltese investors had previously been hidden away abroad and those people could not therefore blame anyone for giving them wrong advice.

Indeed it was this government which had given them the opportunity to regularise their overseas investments.

Opposition speakers had also implied that the MFSC was to blame for not averting the Priceclub collapse. Times had changed, Mr Dalli said, and gone was the time when imports and sales depended on a minister's blessing.

The bill was than given a second reading after a division with 32 government votes in favour and 27 opposition votes against.