Waste not, want not

Amid growing opposition to increases in water and electricity tariffs, Prime Minister Lawrence Gonzi tells Herman Grech that tough decisions are necessary to weather the global storm.

Do you honestly feel that this budget has left more money in people's pockets?

One should not measure a budget just on the amount of additional money left in people's pockets. Of course, that is also important because one of the targets is to incentivise the economy in 2009. But in reality it's a budget which has been crafted within an international scenario. I believe we came up with the best balanced solutions to be able to compete in 2009.

Your government had always maintained that a reduction in income tax yields more revenue. So why didn't you opt for more gutsy tax cuts?

We have never taken decisions in a gutsy manner. We always measured our decisions carefully. Our budget cuts for 2007 and 2008 were done in this manner. It was always within our economic provisions. We knew the economy would grow by up to 3.5 per cent in 2008 - for next year we're projecting a slower growth rate. Prudence and responsibility dictate that every decision has to be carefully weighed. We've taken one step in that direction. With the changes we've made this year in income tax, both low and high earners have benefitted. If the economy picks up by the end of 2009, we'll be able to take the next step.

Don't you think it would have actually helped to regenerate the economy if you made further tax cuts?

Not necessarily. At this point in time, we need to decide on our priorities. The government needs to invest into one aspect of our infrastructure that has suddenly become so important. I'm talking about the infrastructure we need for the generation of electricity - energy. Nobody in his right mind can deny that Malta is now facing one of its biggest challenges ever in creating an energy package.

The one thing which has come out of the crisis phase is the price of oil. But while petrol prices across Europe are going down and electricity prices are stabilising, the government has increased excise on petrol and has come out with the heftiest electricity increases. Where's the logic?

There is a perfect logic. With regard to the increase on excise on fuel, there is a price in our market which fluctuates according to international markets.

But the price of oil has gone down.

It gets revised, based on a set formula and it's transparent. There are no profits. But we needed to create a fund that will finance all the green energy initiatives we need to introduce - the extra excise on petrol is precisely to finance alternative energy initiatives. With electricity it's different. The price of oil continues to fluctuate. Today we're burning the oil we bought two or three months ago. And three months ago the price of oil hit the roof. Of course, Malta will benefit at some point in time and the mechanism we've built into the new tariffs allows for these fluctuations. There's a difference between this scheme and the one the Labour government introduced in 1997.

There is of course an element of bad timing. Around the world the governments are taking mitigating factors to cushion the impact (of the international crisis) for everyone. Hand on heart, do you think it was timely to do it now?

Yes of course - for a long list of reasons. We had an incentive for waste. When we're facing an economic downturn, the worst thing we can do is to let things be, or incentivise people to waste. The system had a capping mechanism which meant that as soon as industry reached a particular ceiling the bill was footed by us. We are introducing a number of measures which will help families and businesses to adjust and opt for alternative sources of energy-saving initiatives. Those cost millions. And I'd rather spend our millions on such initiatives rather than subsidies.

Some people are now accusing the government of introducing taxes under the guise of eco-incentives. How do you reply to this?

I do not accept it at all. For example, should we be criticised for introducing the eco contribution on plastic bags? Can anyone deny the fact that wherever you go you see plastic bags all over this blessed island? We're spending millions to clean the island.

The Nationalists have been in power for nearly 20 years. Why does the government keep saying we can't keep postponing problems when it could have done something about it years ago?

We've done so much for this blessed country and there is so much more we could be doing.

Yes, but you're eliminating Enemalta subsidies at one go.

You cannot do everything at one go.

That's what you're doing.

This country needed to go through a tremendous change after 1987. We had to catch up with a lot of countries. We had to invest in new systems. Twenty years ago we weren't allowed to use a computer, we didn't have fax machines, no mobiles. We didn't have modern schools. We introduced Mcast, we have a modern airport... Over 20 years, this party in government has put this country in the heart of Europe with the euro as its currency. For 20 years we've had an opposition party which has been consistently against change. There's still a lot more to be done.

If you told the electorate last January that you're eliminating the Enemalta subsidies in the next budget, do you think you'd be sitting where you are today?

I would love to be the prophet that you make me out to be. I would love to have known in January last year that oil would have cost $147 a barrel. I would have used all our resources to buy all the oil in the world, sold it all off in July and we would be one of the richest countries in the world. We'd have subsidised everybody. But that's a fairytale. We've never seen anything of the like in the last three months. We have to be responsible. This is the moment when all the sacrifices and successes need to come into play. Now is the time to do it.

Is it the time because it's right after the election... knowing you have a five-year programme?

You know what the answer to that question is. You know what's happening around the world - there's an enormous downturn, there's an enormous crisis around us...

...which was predicted at the beginning of the year.

Oh come on.

The warning signs were there.

Of course, I was the one who warned about the difficulties around us. Though I knew there was a crisis on the horizon, with increases in the price of cereals and oil, nobody predicted we would have the kind of financial crisis we've seen in the last three months. With one of the most vulnerable economies in the EU, Malta has managed to sail through this tempest; we're still unscathed so far.

Don't you fear that you could be dealing the mortal blow yourself with the new tariffs?

I heard that four years and three years ago. When we introduced a number of taxes like departure tax - three years ago I was told we were going to stifle the economy. Of course, I listen to everybody but I ultimately shoulder responsibility for this decision. My reasoning is simple. I prefer to spend people's taxes on incentivising alternative energy rather than financing subsidies that incentivise you to waste.

Legislatures in Malta are like a broken record - the tough measures are taken in the first couple of years and then the sweeteners are given towards the end in the hope of securing another term. Will the electorate buy it in four years time?

I've always put my faith in the electorate. History speaks for itself that we have an intelligent electorate. I will be as honest and transparent as I can. I have a government which is trying its best to once again compete and succeed. I speak with a track record.

A protest in Valletta will be held (today). Do you fear that this opposition to the utility tariffs can grow the way it did in 1998?

Once again, it's an example of irresponsibility at a time when this country needs serious, mature politics. We are once again faced by theatrics which won't get us anywhere. I will let the Maltese people decide whether this manifestation will solve the issue of energy and competitiveness, or whether it's a waste of time.

It's eight months (since the election). What would you describe as your biggest achievement so far?

We've continued with the successful transition of the euro introduction. That process of change brought trouble to some countries and yet we managed to do it so smoothly. We've also put on the Maltese agenda some major reforms, which include shipyards, rent reform and Mepa.

Many people were expecting far more from the promised Mepa reform.

I intended to close off the consultation period with all Mepa employees a fortnight ago. But after it was concluded I received a request from Flimkien għal Ambjent Aħjar for further submissions last week. I've always targeted the end of this year to end the consultation process. It's been intensive and I've seen a genuine wish of a wide range of people who wanted to contribute to make this reform a success.

All previous reforms were intended to facilitate the issue of permits from Mepa. This reform is the other way round. I'm hoping that by the end of this year we will finalise the proposals and come up with a legislative amendment together with other administrative amendments, which I believe will not surprise a lot of people because Mepa's change in direction has already been witnessed in the last few weeks. Anyone who wants to be objective would realise that in the last weeks there has been a shift into a more balanced Mepa, which puts a lot more weight on the environmental impact of its decisions.

After we've built up the entire island, don't you fear that it's too late?

I'll respond honestly: In some areas, it's too late. Some mistakes have been made and there's no way we can turn the clock back. But there are other areas we can fix and we can learn from our mistakes. However, even the ardent critics of Mepa are recognising its valuable role and that it's right in 80 per cent of the cases. Mepa reform needs to be a continuous process.

Are you happy with the work of the Cabinet?

Yes. With a smaller Cabinet there is massive responsibility. The opposition is not helping since it continues to refuse to agree to the pairing agreement.

The Labour Party says we have two prime ministers - Lawrence Gonzi and Austin Gatt. Who's in charge?

I don't have time to waste with the MLP's silly tactics. I was under the impression that there was a change in the air - it's eight months down the line and I realise there's no change at all. It's business as usual at the Labour Party. We had an opportunity for real change in this country in the way we do politics and the MLP is just failing in these challenging times.

Some would disagree and say it was rather gutsy of the Labour Party not to oppose the shipyards' privatisation.

If I recall correctly they were in the streets protesting - again (taking part in) theatrics which don't get us anywhere. We've had to negotiate on our own with the unions. It's one thing to say nice words - the real challenge is action.

The government described last Monday's budget as a green one. Yet some people would say that alternative energy policies appear to be staggered. Does the government have a proper environmenat strategy?

Of course. The national action plan on alternative energy lays out our strategy with measurable targets by 2010. It's an ambitious programme.

What studies have been carried out with the Sikka l-Bajda site proposal for the wind farms? What if the EIA shows that it's not the right site? Are you prepared to go back to the drawing board?

Let's wait and see what the impact will be. Certainly all Mepa studies carried out indicate that if we're going for offshore solutions and for proven technology... Sikka l-Bajda emerges as an ideal location. It's probably one of two suitable locations. Let's leave it up to the experts.

So do you deny claims that the government has an ad hoc strategy for the environment?

Yes. We have a national action plan plus a long list of studies that were carried out under the previous administration - and we're stepping up this process.

But if we look at the water issue, for example, the mere basics are lacking. In 2008, we still have no storm water catchment, illegal borehole drilling has been going on for years and we draw water out of an expensive Reverse Osmosis plant. Where's the logic?

Again, we had to go through different phases. In the 1990s we had to generate enough water for our economy to move forward and we invested in the Reverse Osmosis plant. Now the challenge is water - there is abuse in the water table through boreholes and in the last few weeks we launched another initiative. We are treating drainage before it goes into the sea. For water catchment you need major investment and the new roads we're building are moving in that direction. But there's a long, long way to go. I'm the first to admit there's still a lot to be done.

Drilling for oil around Malta will start in 2010. How optimistic are you that we will strike it?

I always assume we will not find oil. I want Malta to be able to compete and be successful without oil. If we find oil it will be an added bonus - in the meantime I remain with my feet on the ground clearly assuming we won't find oil.

Even if some government officials said there is up to 30 per cent chance of striking oil?

I have to see it to believe it. Even if I see it, and when I believe it, I will still assume that we don't have oil. If this country is lucky enough to strike oil one day, and we will do our best to do so, then the secret (of our success) must remain our human resources.

So until we strike oil, and with the new utility tariffs, are we heading for a bleak Christmas?

No. I'm looking forward with optimism. The EU Commission's assessment of Malta remains optimistic within the darker scenario. The economy is still moving forward, new jobs are still being created, as is investment. We are facing tough times but we are strong - we have not been hit by the financial crisis, or facing the property disasters in countries like Bulgaria. What we need to do is to take the right decisions to remain strong.

Watch excerpts of the interview on www.timesofmalta.com.