Prime Minister Lawrence Gonzi put some money back into people's pockets in this week's budget.
But he says that doing the right thing is more important than popularity.
You've eliminated two tax bands in the budget. Do you think you've gone far enough to pacify people that have been unhappy?
It is not a budget to pacify people, but one intended to stimulate more economic growth. Yes, we have to a certain extent eliminated two tax bands. We also made a very important statement, however; that we consider between 15 to 25 per cent in tax to be a reasonable contribution towards the state. One can now earn more money before hitting the 35 per cent bracket. This encourages people to earn more, declare more, contribute more, and participate more in the economy.
Do you believe people are really earning your projected average of about Lm5,500 or are they really earning more than that?
What would the average be if you had the declared black economy? That is a difficult question to answer. Clearly there is an economy outside the official circles.
Too big?
It's always far too big and any government wants to reduce it as much as possible...
Critics will say that the 35 per cent band still kicks in too early.
It's about what the country can afford at this point in time, and with the forecasts we have. This is an important step but we would like to do more, and will do more, depending on the results we achieve.
More as in tax cuts?
Yes, fine-tuning of tax and continuing to leave more money in people's pockets. Encouraging people to work, participate and invest in their own future.
People were expecting you to reduce the departure tax immediately rather than next June.
We were advised against doing that for a number of reasons; one of which is that now a lot of brochures and prices have been published.
It wouldn't bother many people if the prices listed are incorrect.
What would happen if people would have paid already? Would you give refunds? If you say it would take effect from January, you'd freeze bookings between now and January. So the advice was to introduce it in June. And if we'd introduced it immediately, we wouldn't have been able to make the same changes to income tax.
You were saying in the run-up to the budget that you had Lm8 million to spend, and you've actually spent Lm12 million. Can you afford this?
Yes, because we had better results than projected over the summer months and because our projections for economic performance in 2007 are good. We've still been cautious, even with the Lm12 million. In the past months we have asked a large number of people to make sacrifices to get the country to this stage. It's now time for us to say, "we've almost arrived where we wanted to go, so you deserve to have something back". This is what we will be doing.
Was this the last budget?
No. We should be in a position to have another budget in 2007, which will be an interesting one because by then we will know whether we will be introducing the euro in Malta in 2008 and would have finished the Mater Dei Hospital, so we would have got rid of quite a lot of capital expenditure.
You've said Malta is on course to join the euro. How can you make such a statement when inflation is so high?
Because we've already achieved three of the four criteria that are usually the most difficult... We have managed this year to get the deficit below the three per cent benchmark - from 10 per cent just two-and-a-half years ago. When we presented the convergence programme then, so many people told us we wouldn't manage to do it. We've proved everyone wrong since then.
But inflation is a big issue. And it hurts people's pockets.
Yes, inflation is our biggest challenge. Am I optimistic that we can address this? What I can say is that we're determined to do our best to bring inflation down - within the reference value of the EU.
The ratings agency Fitch is saying you can't do it.
We can do it. It's within our reach and we'll be doing our best. If we manage, we would have once again proved people wrong. If we don't, then we'll have to work very hard because achieving the Maastricht criteria is crucial for the country not just because of the euro, but because Malta will continue to become an even more attractive place for investment.
How big a failure would it be if you don't make it?
It won't be an issue of failure, but an issue in the sense that we'll still have to work hard to get into the first available date which will be one year later. Lithuania has had to face this.
If the government states that the target is to get in by 2008 and doesn't make it, it's a failure.
Yes, but the issue is this: if we don't make it because of the rate of inflation, it's clear that it will not be because the government has failed. Our rate of inflation, more than other countries, depends very much on the price of oil. We are affected by it on two counts: generation of electricity and generation of drinking water. Most other countries don't have that.
You seem to be less optimistic today about making it than you were six weeks ago.
I am still as optimistic. We introduced the surcharge a year ago, so today we're still carrying the impact of that over a 12-month period. By the beginning of November, this impact would have been absorbed completely over this 12-month period. So our projections for November to March are that inflation will go down to below the reference value. Will we manage? We'll see. Time will prove whether I'm right or wrong. I'm confident we will.
The Governor of Malta's Central Bank doesn't seem to share your optimism. He has sounded a much more cautionary tone.
The Governor has always been at the forefront, encouraging not just the government but the whole country to go for the adoption of the euro at the earliest possible time. His advice has been it's important to bring down the deficit and the national debt and we've always valued it. He is expressing concern on the inflation rate, which is a concern we share. But I'm quite confident we'll overcome this final hurdle.
What's the biggest measure you can take to bring down inflation?
There is no specific measure because we have an open economy and a lot of our inflation is imported. There is little the government can do, except in some areas, such as medicines, which we have already addressed and prices are already starting to go down.
Is reducing the fuel surcharge an option you're actively considering?
If I reduce the surcharge, I would still have to find the finance to pay out the difference, so I would have to tax people.
So you're ruling out reducing the surcharge.
If the surcharge is decreased simply to reduce inflation, then I would have to find the financing. In that case I would not have been able to review the tax bands. To do otherwise would be to cheat ourselves into thinking that the price of oil has gone down when it hasn't.
So you won't reduce the surcharge if the price of oil doesn't come down.
If the price of oil doesn't come down and if the measures we're taking - because there are a number of initiatives - fail, I will always take the best course for the country even though it isn't necessarily the most popular. At the moment oil is going down. If this trend continues then definitely the surcharge could go down. But I'm no prophet.
On September 17, the Nationalist Party announced its first batch of election candidates. The following day you cautioned against the country moving into election mode. Wasn't this a case of shutting the door after the horse bolted?
On the contrary. We had to start a process of identifying candidates - for the local council elections of next year and the general election due to take place in 2008. Had we done this secretly, I'm quite sure there would have been panic. Instead we did it in the most open manner...
But the fanfare that came with it launched an election campaign.
I disagree. That's because people tried to paint it that way.
Your own general secretary was talking in these terms.
I disagree. He said "we're announcing the first batch of candidates. We've started the process". And he gave extensive interviews explaining what the whole process was.
But don't you think that, in retrospect, people are in election mode and that this creates uncertainty for the country?
It's because the media tries to interpret it that way.
Interpreting correctly.
No, incorrectly. A political party has done what it is supposed to do 18 months before the scheduled date of closure of a five-year legislature. Now is the time for the Nationalist Party to start to prepare for the initial stages which will then bring us to an election campaign, hopefully towards the beginning of 2008.
You have said the election will take place in 18 months' time. That's April, 2008, right?
You can say April, you can say May, you can say August if you like - I wonder if I might be the first Prime Minister to hold an election in the middle of summer. I might be tempted, I don't know.
Will the election be after the local council elections or before?
It could be before, but if I had to make an assessment today I don't think that would be a good idea. I think having to make the country go through local council elections and the general election doesn't make sense. But I don't rule out anything; everything is possible.
Your general secretary has said that when the election does come, the party will just "blow the whistle, rally round, and win". Do you think this is all it takes to win the election?
I wish things were as simple as that. Joe (Saliba) summarised beautifully what is obviously a major event for the country and the political parties.
Don't you think he trivialised it by putting it like that?
No. In a sense it is true.
Do you think it's as easy as that to win over voters?
He didn't say that. He didn't imply it either. He meant that when the time comes, whatever we say, whatever speeches are made, people will judge us on our track record. Have we kept our word? Have we delivered? Have we provided a better quality of life? Have we moved this country forward? The bottom line is that families will judge us by what we've delivered.
If they had to judge you today, they won't vote for you according to the polls - some put you 10 points behind.
We'll see. An election is not a poll.
How far are you behind according to your own polls?
We are behind but close.
How close?
Within reach. We can do it. Even if I have a poll that says we're close - and that was taken last week - it's no longer valid as I have just presented the budget. So what's important is what the poll will say tomorrow.
But there's been a consistent trend of government unpopularity.
To a certain extent. I have always believed that you don't manage a country simply by going for popularity.
But you win an election by being popular.
Yes, but that doesn't mean you're doing the right thing. Whoever wants power at all costs does that. I don't have that philosophy. I don't want power at all costs. I want to say that I've done a good job for my country. That's all I want.
The majority of people have called for at least a reshuffle. Yet you have not granted them that.
You don't solve challenges by going for gimmicks. And I don't respond to what some individuals clamour for. Will the price of oil go down if I reshuffle? Will the number of tourists increase if I reshuffle? Will we get more investment if I reshuffle? Policies get results. A reshuffle takes place if and when the Prime Minister decides that would be in the best interests of the country. That's my standard.
Take tourism as you mentioned it - I can think of a couple of others as well - what does it take for you to make a change in the leadership of a ministry?
It takes a decision by the Prime Minister that that would be in the best interests of the country.
And disastrous tourism figures aren't enough.
Who says they're disastrous?
There was a projected increase of 50,000 and we're seeing a decline of almost 50,000 instead.
We have the same number we had two years ago. Yes, we had a target of increasing the figure by 50,000. We would have loved to have reached that but have not managed to do so. Is it because the government has failed in a particular area? Could be. The government could have done more. But it's not just the government. The whole country needs to respond.
Isn't there any accountability in your government?
There is accountability in every area and it's something the whole government needs to shoulder - not just one minister. Our responsibility on this issue is not to address challenges in a superficial manner. Tourism requires a strategy for the real challenges we're facing. Malta needs to become more competitive. This does not just mean improving the product - and we are investing millions of liri in this - it also means we need to have better prices in our restaurants, taxi drivers who behave in a way that attracts tourists, keeping Malta clean. Everybody is pointing the finger at one sector when in reality everybody has to pull their socks up.
So you will not make changes to your Cabinet before the next election.
I didn't say that. I will take that decision if and when I think it's in the best interest of the country.
The public was told that the Smart-City agreement would be tabled in Parliament last May, yet several months on nothing has happened. Is SmartCity going to happen?
It is going to happen. The reason the agreement hasn't been tabled is because negotiations are still going on about certain details.
What details?
I won't go into that because in this country there are people who want us to fail on this issue. There are people who would really enjoy seeing Malta lose this investment and I'm disgusted by this attitude. The details will come out when we go to Parliament and announce it.
When?
Soon.
How soon?
Soon.
Don't you think the public was not told the truth about the SmartCity project in terms of the scale of the residential development involved?
Absolutely not. The statement that has always been made is that this is an investment that will create 5,600 jobs.
That statement didn't say 500 homes.
It's a whole project.
People were not told that.
Anyone who has seen Dubai Internet City in Dubai - and you don't have to send your contractors there to do this and try and undermine the process - will immediately understand what the model is.
So why weren't people told this when the project was announced?
Because there are a number of issues that had to be discussed and ironed out between the government and Tecom, which is investing $300 million. These things don't happen in the amateurish way that some people think. I am disgusted that there are people who are trying to undermine the biggest achievement that Malta has had in its history.
Were you personally aware of how much residential development was involved in this project?
No, I never went into all the details.
So you weren't aware.
I was aware of what the project entailed, of the hotels, of the residential units, of the open parks, possible golf course. But if you ask me if I knew whether there were 450 or 500, then, no, I didn't know... I'd like to know whether people are telling me to throw away 5,600 jobs because there will be a number of villas in the area next to Cottonera that is currently taken up by dilapidated factories. I'd love to hear someone tell me that.