Business Promotion Act is a dead letter - Mangion

Opposition deputy leader Charles Mangion yesterday urged the government to acknowledge the problems the economy was going through.

Speaking at the opening of a parliamentary debate on the economy, requested by the opposition, Dr Mangion said the Business Promotion Act was "a dead letter" as many of the investment incentives it offered now no longer applied. And the longer the government took to present a new package, the worse the current situation would get.

Dr Mangion said the motion the opposition had moved for this debate was based on reality and not political prejudice.

The motion did not seek to make a political football of the current situation, but was calling for the economic problems to be addressed and for an economic plan to be drafted for the purpose. The opposition wanted investors to be able to come here and plan their investment. It also wanted the economy to be such that social welfare could be sustained.

Malta was now no longer in a climate where it did not know whether it would join the EU or not. Membership was now accepted by practically everyone. The new reality was that Malta, together with the other EU countries, had to aim for the attainment of the Lisbon Agenda targets, including social inclusion and that 70 per cent of the working population should be in full time employment by 2010. The Malta participation rate was currently only some 53 per cent.

The agenda laid down that Europe should have a dynamic, knowledge-based economy stemming from a well-trained workforce, innovation, research and full use of technology, a flexible market sector and competitiveness. The agenda placed strong emphasis on the role of SMEs and helping business start-ups, not least because only some 20 per cent of start-ups flourished.

The agenda made a strong link between the economy and the social sector, calling for schemes for life- long worker training and closer coordination between labour market and education systems. It insisted that a percentage of GDP should be allocated for research and innovation and an exchange of information between the EU member states. The agenda underlined the need to sustain pensions and national health services and to eliminate social poverty, currently running at around 15 per cent in Malta.

Economic planning also had to take place in the context of globalisation, Dr Mangion said.

There needed to be consensus in Malta about the economic situation here, and how it could be moved forward. The Business Promotion Act was a "dead letter" with most of the incentives the act had offered now no longer applicable. The longer Malta delayed introducing a new package to attract investment, the worse the situation would get.

Few could argue, Dr Mangion said, that economic growth had stalled since 2000. The World Economic Forum had downgraded Malta's competitiveness rating this year and Malta was among one of the least attractive for investment among some 115 countries. The forum had pointed out irresponsible spending by the government.

Government spending, Dr Mangion said, did not address priorities, as evidenced by the excessive spending on Malta House in Brussels, the investment in the failed Brindisi container terminal and the unchecked cost overruns at the new hospital.

At the same time the tax burden was getting heavier and the deficit was getting wider.

Over the past three years investment grew in all EU countries except Malta. The Prime Minister had said that foreign investment grew by Lm29 million this year. Where was it? The Central Bank Quarterly Review (second issue) showed this amount was only made up of banking transfers, the money flowing in and out again.

The government, clearly, needed to be realistic in its assessments.

That applied also to the way how unemployment was growing constantly. Particularly worrying was how (according to Malta in Figures 2004 issued by the NSO) claims for unemployment benefit in 2002 reached 11,876 and in 2003 the figure grew to 17,190.

This called unemployment statistics into question. Even the Labour Force Survey had put unemployment at around 13,000.

Government revenue from National Insurance dropped by Lm2 million in the first nine months of this year, yet another indication that unemployment had risen.

Dr Mangion said the education system was not performing well, with too many young people leaving the system without basic qualifications or skills. Malta had the highest percentage (almost 50 per cent) of early school leavers among the EU 25.

Malta also had one of the lowest percentages of lifelong learning. According to EU figures, last year Malta's youth education attainment level was in the 25th position. The business investment ranking was one before the last.

Between 2000 and 2003 sales dropped by Lm134 million, value added dropped by Lm20 million or 5.5 per cent and profits declined accordingly. Employment in the manufacturing sector dropped by 3,000. Investment in manufacturing dropped by 44 per cent as competitiveness declined and production costs rose.

The latest figures also showed how exports were down this year.

The situation was set to get worse as power tariffs went up. Such was government inefficiency that Enemalta was owed some Lm24 million in unpaid bills and a drive would now be launched to collect them. He hoped there would be proper allowance for those who could not pay.

Continuing his review of figures, Dr Mansion said that between 2000 and 2003 the tourism sector shrunk by 90,000 tourists. This decline could not be attributed to what was happening overseas, since competing, destinations were doing much better. The problem was the lack of government initiative.

Inflation was also rising, not least because of the VAT increase and the eco-tax. Much was said of the drop in the price of wine and pasta, but costs for minerals, transport and health had grown.

The most serious problem, however, was the deficit, currently at seven per cent of GDP. The debt this year would reach some 74 per cent.

Malta needed a coherent plan for economic revival. Even the dates for euro adoption were changed as frequently as Super 5 numbers.

A plan for economic regeneration needed to focus on improving the tourist product and marketing.

There also needed to be a streamlining of public authorities and regulators, which were overlapping each other, creating new bureaucracy and slowing decision-making, discouraging investment.

The government needed to set fixed targets for its projects, such as the White Rocks Complex and the Gozo-Malta ferry terminals.

A review of the benefits or otherwise of privatisation needed to be made, along with a proper plan for the future. And the government needed to confirm it intended to sustain the welfare state, Dr Mangion concluded.

Leo Brincat (MLP) urged the government to adopt recommendations on improving competitiveness made by a sub-committee of the Malta Council for Economic and Social Development (MCESD).

That action was needed to improve competitiveness was underlined by the drop in ranking given by the World Competitiveness Forum.

The forum had laid the blame for Malta's poor performance on, among others, its structural deficit and low cooperation between the education and the economic sector.

Competitiveness was everyone's problem, but the government must be the protagonist to turn around the situation. It was not true that the lack of competitiveness was due to a lack of economies of scale: Ireland was much smaller than the US, but more competitive. Malta was falling back while competitors were moving forward.

One reason to this failure was the lack of commitment by the government to research and development. The worst problems in the R&D sector were the fact that few patents were being registered in Malta and the low level of scientific and technological skills in the Maltese workforce, and the government's inaction was making things worse.

The government did not even have a clear vision of its goals. The proposals of the MCESD's working group on competitiveness were not gospel, but the government was wrong to ignore them.

The committee had said that a reduction of just one per cent in indirect taxation could lead to a rise of two per cent in economic activity.

A reduction of VAT on restaurants would lose the government Lm10 million in revenue, but increase activity by Lm12 million.

The committee had also recommended a benchmarking system in utility services.

José Herrera (MLP) said it was time for the government to present parliament with a plan of how to regenerate the Maltese economy.

Dr Herrera said that the opposition was making regular visits to constituted bodies, listening to them and being very open with them to get into the grassroots of problems.

This motion presented was the fruit of such meetings, Dr Herrera said.

He observed that income from tourism had dropped substantially; in Gozo alone by 22 per cent in the past seven months. Despite the poor performance of the tourism sector, the tourism authority's expenditure had gone up over 20 per cent in 1.5 years.

The government needed to acknowledge the problems Malta faced, and then face up to them.

PN speakers are being reported separately. The rest of the debate will be reported tomorrow.