Labour MP Alfred Sant told Parliament that the government’s pre-Budget report published last July admitted that the economy had continued to lose its competitiveness when compared to other EU member states. But the report failed to draw any conclusions or to indicate the way forward on how to energise economic growth in real terms to generate more business in Malta and consequently increase profits.

Dr Sant was speaking during the debate in second reading of the Bill amending various financial services laws. He said that although the proposed amendments were to pave the way for the adoption in Malta of measures decided at a European level, the minister had failed to give details on how these developments, on a European and global level, were to affect Malta. MPs expected the minister to provide details on how the financial sector was performing when Malta had a competitive advantage.

An effect on the economic profile was that the financial services sector attracted substantial overseas funds. These foreign funds were only temporarily invested in Malta, and as such could not be considered as real investment.

Dr Sant also said a number of economic indicators were being left out because the concept of “one size fits all” was being adopted. As a result it was becoming increasingly difficult to distinguish between exports and re-exports when this was crucial in understanding how the productive sector was performing.

He said that although the pre-Budget report mentioned an eight per cent increase in the financial services sector towards economic growth, no comparison was made on its significance.

The latest employment figures in the financial services sector, which went back to August, showed that on average there had been a 3.5 per cent cumulative increase in employment per year between 2005 and 2008. This could be considered as a good rate, indicating that the sector’s contribution to economic growth in the future could be greater.

The country’s strategy had to reflect this reality, but it was restricted because of decisions taken at EU level. Everyone agreed that Malta was not a tax haven, but it was clear that competition depended on how much European and global economic systems permitted a level playing field in business where financial systems and taxation were differentiated.

Dr Sant complained that scrutiny by the government or by Parliament of decisions taken in Brussels or Frankfurt was far from adequate. The government’s stance was that what was decided at European level had to be accepted. This had been evident when the parliamentary committee had discussed the EU Services Directive Bill.

He called on the government to inform Parliament on how it was defending Maltese interests in its negotiations with the EU, and also on how economic and financial decisions taken at EU level were to be applied in view of the fact that the Maltese Parliament had neither the time nor the resources to perform this function. One expected the Maltese government to explain how it analysed EU proposals and what position it would take.

Dr Sant asked what the government position was on the Mario Monti report which proposed more regulation in the financial sector to avoid similar financial crises. The report proposed a centralised surveillance system because national supervision would fragment the market. The government had remained silent.

On Prof. Monti’s proposal to relaunch the Integrated Single Market, the government had still not pronounced itself.

The EU Commission was proposing a Financial Transactions Tax, which should be introduced in all countries if it was to be successful. Still, the Maltese government had not mentioned anything; the Prime Minister had only stated that this tax should be introduced in a partial way. The EC had also proposed another tax: the Financial Activities Tax. While certain people argued that this tax would serve as a money-saver to make good for future problems, Dr Sant said this would be unfair with countries, including Malta, which had not contributed to the financial problems. While this tax would impact the development of the Maltese financial sector, the Maltese government was still keeping silent.

Dr Sant said if things continued this way, the Bill would only serve to empower the government to implement amendments which Brussels would have ordered. Together with the private sector, the government needed to plan future strategies.

When in government, Labour had given the private financial group in charge the mandate to design the best future strategic position. The report kept being used as a reference, he said. Facing change, the Maltese financial sector needed a strategic plan. The government’s inefficiencies in the sector were unbelievable, Dr Sant concluded.

Opposition finance spokesman Charles Mangion said the opposition agreed that the consumer should be legally protected, and that regulation should seek to ensure various future job opportunities.

Dr Mangion said the Bill was introducing the concept of credit-rating agencies. Agencies would lead to stability, but proper scrutiny was necessary to have efficient employees capable of explaining in depth the risks to prospective investors. Most Maltese citizens were not informed investors.

Another important aspect of the law dealt with the supervisory role of the Malta Financial Services Authority, which was an important aspect, together with the first-ever introduction of companies dealing in funds and insurance.

Turing to the financial sector’s importance in the Maltese economy, Dr Mangion said that this area had developed because there were competent persons and continuous development in legislation. Transfers to the sector had led to 60 per cent of the investment in Malta.

The recent GDP statistics showed an increase of four per cent coming mainly from the financial sector in the first six months of the year. But this did not ensure increased workers’ profits, which had in fact diminished. The per capita purchasing power of Maltese citizens was lower than the European average.

Malta’s share in world trade had reduced in the period between 1993 and 2008, and had it not been for the financial sector the picture would have been bleaker.

Dr Mangion said it was useless to compare tourist numbers to a previous year which had already diminished on the year before. There had been 1.214 million tourists in 1999 spending 11.6 million bed nights, while in 2008 there had been an increase in tourists to 1.29 million but bed nights had decreased to 10.9 million. This meant that there was an extra strain on Malta’s infrastructure while spending less.

Concluding, Dr Mangion said Malta had one of the highest productivity rates but the worker’s wages had not gone any higher. Malta could not revert to cheap labour in order to improve its economic situation because this would lead to further diminishing workers’ purchasing power.