Sant plans to cap tax on oil imports

Opposition Leader Alfred Sant said yesterday that the surcharge on electricity could be cut by between 40-50 per cent if the government capped its tax revenue on oil imports and if inefficiencies in power generation were removed from the calculation of the surcharge.

He told Parliament that while the surcharge had to reflect the realities of the international oil price, it should also reflect the government's social responsibilities.

It was not fair that inefficiency in power generation accounted for between 20 and 25 per cent of the surcharge and that as the oil imports bill rose, tax continued to rise accordingly.

What was even worse was that VAT at 5 per cent was also being charged on the surcharge on electricity consumption. Therefore, unless the government acted sooner, a Labour government would cap its revenue from VAT on fuels so that the surcharge would be reduced.

In a two-hour speech in reply to last Wednesday's budget speechs Dr Sant also referred to euro adoption. He said that although the opposition had criticised the government for setting an early date for euro adoption, now that a date had been set, the MLP would work for it to be met since slippage would cause economic uncertainty.

With a decision from the EU due in the middle of next year over whether Malta would be able to adopt the currency on its target date, the MLP was promising that a Labour government would continue the process for that target to be achieved, even if it was elected next spring or in the following autumn. At the opening of his address Dr Sant reiterated his view that this budget was weak, hollow and part of the government's strategy to deceive the people.

The government had not explained why the budget had been presented so early this year, but the situation was such that much of the information given with the speech only covered the first half of the year.

Last year the government presented a budget with the slogan Biex int tghix ahjar. But rather than being better off, over the past year the people saw their quality of life deteriorate.

As this budget approached, several strange developments took place with PN officials apparently trying to raise election fever. Why would a ruling party try to raise the election temperature so early?

And then the impression was given, notably by the Prime Minister and the PN general secretary, that after years of increasingly heavy taxation, relief was on the way. The people rightly expected a substantial drop in taxation, in the power surcharge, income tax and the departure tax.

The Prime Minister on October 15 claimed that the country was moving forward and the government was achieving its targets. Yet the Economic Survey published with the budget speech showed that between 2003 and the end of last year the average wage in real terms dropped by almost four per cent. In the first half of this year there was a further drop of one per cent. So how could Dr Gonzi claim that the country was doing well when the people were earning less?

Dr Sant said he was surprised how, during an interview on RTK, Dr Gonzi said that his government's first priority had been to put the country's finances on a sound footing. So how had the PN in 2003 told the people through election placards that finances were already on a sound footing?

How could the people believe the government now, when reality was so different? The MLP was repeatedly accused of trying to paint a dark picture of the economy. Yet a GRTU-commissioned report entitled Exports, Inflation and Value-Added by Joseph Falzon showed that since the year 2000, exports of products and services were on a constant decline both in value and volume terms. Export competitiveness and the share of exports in GDP declined.

The manufacturing sector over the past decade shed 6,450 jobs, or 20 per cent and workers saw the slowest growth in their wages among all sectors of the economy, with the tourism sector workers not faring much better.

The figures showed that over the past nine years, value added by the economy after deducting operational costs was almost half the rate of inflation.

The conclusion of the report by Prof. Falzon was that inflation was probably the most serious problem faced by the economy today. In real terms, per capita growth was the same as in 1996. Therefore, as Prof. Falzon had found, there had been no economic or social benefit from the fact that over the past nine years, the cost of living rose by 25 per cent.

Dr Sant said that all this was worrying, more so because these trends were continuing. Yet, surprisingly, the government was not giving due attention to the cost of living.

In an interview in The Times Dr Gonzi had said: "There is no specific measure (we can take to reduce the cost of living) 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..."

Dr Sant said such a statement betrayed the government's failure and lack of ideas because the inflation rate in Malta's main trading partners was actually well below Malta's, even if oil prices were eliminated. The current inflation hike, therefore, was not imported.

The cost of living was an important issue because of its impact on families and competitiveness. But the measures announced in the budget last week were too little too late, Dr Sant said.

Last week Dr Gonzi boasted that the economy was gaining momentum and had grown by 2.6 per cent in the first half of this year. Why, therefore, were so many people and small businesses not keeping up with their bills?

The real situation was that incomes were continuing to decline in real terms. Private consumption had only increased because the people were eating into their savings.

It was only the profits of large companies such as the banks and the betting company which were rising, and these had impacted on the national economic figures.

Prof. Falzon was correct in saying that if the cost of living was not reined in, manufacturing and tourism would continue to suffer, and without them, the economy could not grow.

Dr Sant said the poor state of tourism was evident throughout the past eight months with the number of arrivals down by 29,800 or 3.7 per cent - this when arrivals were supposed to rise by100,000. Bed nights were down by 195,000, or 2.6 per cent and tourist spending rose by only Lm600,000 or 0.2 per cent, well below the inflation rate.

There was a substantial drop in the number of visitors from the main source markets, notably the UK, France and Italy. Hotels had seen occupancy rise only because English language students moved to hotels from host families after the government started to tax those families heavily.

Instead of government leadership, what Malta had seen was gross incompetence even as the Prime Minister continued to proclaim confidence in the tourism minister. What results had come of the inter-ministerial committee on tourism set up and presided by Dr Gonzi two years ago?

The restructuring of the MTA had led nowhere except to a succession of chairmen - with the last one resigning but continuing to receive his salary until the end of his term.

Then there was the Brand Malta fiasco, the mistaken decision to close MTA offices abroad, which was now being reversed, the mistaken decision to advertise on CNN, and the madness over the decision to site a golf course at Ghajn Tuffieha.

Furthermore, construction works had continued in the peak tourism season near the main tourist sites as well as near the airport. The perched beach at Bugibba had not been completed on time, and much of the sand was washed away by the first storm.

Two years were wasted on dithering over low-cost airlines when in Europe these airlines had become an essential component of tourism.

Now one major low-cost airline had been allowed to operate to Malta, but there was still no proper strategic plan on low-cost airlines. Furthermore Air Malta was left without any protection in the midst of tourism's problems, the high oil prices and the increased competition from low-cost airlines.

Tourism was in crisis because of the government's indifference. In August, the MTA launched its 2006-2009 strategic plan. At the same time a consultative group was set up to make recommendations on tourism. Last week the Prime Minister said he had received the recommendations and they would be integrated in the strategic plan, but they were kept under wraps.

Turning to the state of manufacturing industry, Dr Sant said that official figures showed a slight improvement in the first six months of this year but the sector as a whole remained very weak.

Sales by manufacturing firms rose by almost Lm37.4 million, or 8.2 per cent over last year, but that was still 1 per cent below that in the first half of 2004. Crucially, much of the increase in sales this year stemmed from just one firm, ST Microelectronics, which had recovered from disappointing results last year. The situation also improved for pharmaceuticals, transport and medical equipment, but there was a deterioration in the sales of the food and drink, textiles, printing and paper, rubber and machinery sectors.

New investment rose by Lm7.3 million but here again this stemmed almost totally from ST.

Between June 2004 and 2005 the manufacturing sector shed 406 jobs, or 2 per cent and between June 2005-2006 a further 1,269 jobs were lost, 6. 5 per cent.

The government last week announced a strategy for industry. But although the document consisted of over 100 pages, it was also hollow - akin to the hospital migration plan.

This so-called strategy features much talk, many declarations but no substance. What industry needed was leadership, not talk.

About two years ago a group of foreign investors told The Times that if the government heeded and helped them they would be able to create up to 1,000 jobs. Had this declaration been made under a Labour government he would have immediately sent for them. But under this government nothing was happening.

Malta had a problem over how it would attract foreign investment. Time was showing how the setting up of Malta Enterprise (ME) through the amalgamation of Metco, Ipse and the MDC was a mistake. SMEs were facing endless bureaucracy and they were being treated much in the same way as ST, because the administration at ME could not differentiate between large and small.

The Business Promotion Act had long been crying out for updating, but nothing was happening. It was claimed that incentives had to be in line with those in the EU. This was not a justified excuse for the delay in modernising the set-up in Malta.

It was shameful how the government mentioned a new technology venture fund in 2002, but, incredibly, nothing had happened so far.

Turning to agriculture, Dr Sant said the net value of produce had declined from Lm28.2 million in 2002 to Lm23 million last year, a drop of 18 per cent. Subsidies had increased from Lm429,000 to Lm2.8 million last year, which meant that farmers were now dependent on subsidies which could disappear overnight.

Earnings by farmers in 2005 was the lowest of the last four years.

In this sector too, the government was showing itself to be indifferent to the plight of farmers so much so that even the so called safeguard clause was not brought into force. The fisheries sector was also sinking and there was uncertainty in the sector and no government interest to ensure there was a sound future.

Dr Sant said that in the case of the self-employed he did not need to mention statistics. All people he had spoken to expressed declining business and a lack of government support, evidenced by the delays in the redevelopment of the crafts village, government- induced costs including the surcharge and bureaucracy which stifled all initiative .

Dr Sant said this was a year which saw the government destroy Sea Malta. Maltacom was sold at below market prices and its workers faced an uncertain future. The shipyard workers also continued to face uncertainty, especially as more foreign workers were taken on . There had been statements on partial privatisation at Enemalta which had so far not developed. PBS had been shorn of many of its elements and its news section brought under stricter political control.

The mistake made in the privatisation of MIA became evident when Malta could not be flexible enough to attract low-cost airlines.

Dr Sant said a Labour government would change government policy in all these sectors in the national interest and the interest of the workers.

Dr Sant said that in Gozo, youth unemployment was higher than in Malta. Three hotels had closed or were closing down and the Xewkija industrial sector was a cemetery. The helicopter service was often not working, tourism was under-performing and agriculture was suffering. Various services provided in Gozo had been transferred to Malta. Infrastructure projects were taking too long to be completed.

The government every year promised millions in investment but spent much less. In 2004 it promised Lm3.6 million in capital expenditure but spent less than half, last year it promised Lm5.7 million but spent Lm2.4 million. This year, up to August capital expenditure was only Lm1 million when the projection for the whole year was of Lm6.2 million. It was no surprise that the Gozitan economy was stagnant.

Dr Sant said the common root of all these problems was the challenges of job creation and inflation control.

The opposition felt there was a need for proper planning. Dr Gonzi had claimed that 4,300 new jobs were created over the past year, but he had still not been able to substantiate that figure.

At the same time, the number of registered unemployed in the year to June had increased to 7,061 from 6,930 and the number of gainfully occupied rose by only 621, to 139,437. And a substantial part of new employment was in part-time jobs as primary occupations.

The government seemed to be resigned to the fact that new jobs would only be part-time with minimum protection and poor conditions for the workers.

This was not a good omen for Malta's young people. How could they plan their future in this way?

There was no future on a sound footing here, Dr Sant said.

After referring to euro adoption, Dr Sant said the major difference between the opposition and the government was not over the euro but the fact that the government was ignoring the economic and financial challenges which the country faced. Although deficit reduction was important, even more important were job creation and reducing inflation.

The government was persisting in blaming Labour for the deficit when it was actually at its highest - Lm188.6 million - in 1996 under the Nationalists. What Labour had done was raise the alarm after years of denial by the Nationalist government.

Under successive Nationalist government, spending and taxation continued to rise year after year. In 1998 under Labour the tax burden increased by Lm17 million. Since then the burden of direct and indirect taxes rose by between Lm50 million and Lm60 million per year. Between 1998 and 2003, 13 new taxes were introduced. Since 2003, 43 new taxes were introduced.

After so many years of tax increases, the people in this budget expected a substantial drop in taxation notably VAT, income tax, the surcharge and the departure tax.

But there had been no changes in VAT or the surcharge and the departure tax would be halved only in June. Why wait so long?

The income tax bands had been changed and some families had been given some relief but those couples earning less than Lm4,500 had been forgotten.

It would only be those who earned between Lm5,500 and Lm6,500 who would be making a saving higher than inflation. For all the others, the deductions would be eaten away by inflation. For example, those earning Lm6,000 and filing a joint declaration would gain 2.2 per cent when inflation was 3.3 per cent. Those earning Lm9,000 and filing a joint declaration would make a tax saving of 3.2 per cent.

Like last year, the government's claim that this budget would not raise taxes was not true. This year tax revenue increased by Lm62 millon. Next year it would increase by a further Lm48.8 million.

At this stage Dr Sant urged the government to reduce the surcharge in the way Labour was proposing.

He said the budget should not be an accounting exercise but should be about giving the people value for their taxes.

Could anyone be satisfied with the returns from the investment that was being made in education. How was it that 81 per cent of school leavers did not even sit for SEC exams and on 38 per cent passed exams to move to the sixth form.

Malta still had the smallest percentage of young people in the EU who moved into post-secondary education. It also had the highest percentage of early school leavers.

In the health sector, why was there a higher proportion of fatalities from heart disease and the arteries of the brain compared to the rest of the EU?

Why were waiting lists for important operations getting longer?

Why was there so much confusion on migration arrangements to the new hospital?

Why, when so much was being spent on training doctors, was the doctor shortage persisting and why were so many doctors going abroad?

Why had the government taken so long to reach an agreement on medicine prices?

The Times had listed how medicine prices would drop. The MLP had prepared a list of prices for medicinal products in common use and found that the new prices would still be well above those of 2004. For example, Ventolin would be 35 per cent more expensive, Augmentin would be between four and 14 per cent more expensive, Flixonase 22 per cent higher and Actifed nine per cent more expensive.

Dr Sant said the MLP was preparing well for government and was holding extensive consultations on every aspect of life.

It had produced a strategic economic and social plan, an industrial policy, a plan for tourism, the environment, education, health, Gozo, working conditions, young people, equality between men and women, local government, IT, the development of the civil service, agriculture and fisheries and the development of cooperatives .

The process will continue in areas such as the family, the elderly, immigration, justice, foreign affairs and the national heritage.

All these plans would be based on the opposition's commitment to job creation, dignity and protection.

The most important priority would be job creation that would really give young people a sound future. The Labour government would win the fight to control prices and costs in areas such as the surcharge and medicine and it would use the existing regulatory mechanism and other tools that were in line with EU regulations to control inflation and prices, notably for food, medicine, transport, water and electricity and education.

It would act to avoid inflation when the euro was adopted on January 1, 2008. Within six months of assuming power it would move tax cuts for the tourism sector and develop areas such as Maghtab, Grand Harbour and Gozo.

In the manufacturing sector a Labour government would form a committee composed of entrepreneurs to study how existing firms could continue to invest in Malta.

A task force would propose measures to cut tax and bureaucracy for industry and the Business Promotion Act would be updated.

There would be better maintenance of industrial parks and the crafts village.

There would be new legislation giving status to the self-employed and reducing red tape.

In the education sector a reception class would be introduced between kindergarten and primary school and Mcast would address the void left when trade schools were closed. Mepa would be reformed to ensure that efficiency was improved.

Concluding, Dr Sant said that the country could not continue with a government whose policies were stifling initiative and discouraged the people through empty promises and projects which never took off. The people wanted a new beginning with a vision based on realism, courage and all-round participation.