The government needs to send a strong message in the next Budget that the public sector is neither an employer of last resort, nor a refuge to those who feel privileged or entitled to land a non-productive job in some obscure government department, according to Joseph Farrugia, the director-general of the Malta Employers Association.

In an interview with The Sunday Times of Malta Mr Farrugia says the increase in public sector employment is of concern to the MEA for a number of reasons.

“Firstly it is a drain on public finances and increases government expenditure unnecessarily. Secondly, Malta is facing a situation whereby people are aspiring for a job in the public sector even if it means foregoing a job in the private sector, with the result that a number of vacancies in the private sector remain unfilled, or else taken up by foreign employees. This is happening mostly in low skilled and semi-skilled jobs,” he says.

He says that while there is no question that the government does need to strengthen its human resources in some areas such as health, it is obvious to many that there are many areas which are “grossly overmanned”.

The MEA had said it agrees with the general theme of the pre-budget document entitled ‘Generating opportunities, not dependencies’. What concrete measures would employers like the government to introduce in the Budget to curtail a culture of entitlement?

“Any aspiration to change a prevailing culture is ambitious and normally takes considerable time to achieve. The message should be that no one owes us a living, and that the only way the Maltese can sustain and improve their standard of living is by working harder and more efficiently. Our proposals are based on this principle.”

Mr Farrugia says the government’s incentives for more people to take up voluntary third pillar pensions are a step in the right direction but are not adequate to really encourage a take-up of the third pillar options.

“A culture change in this respect has to combine educational campaigns which basically raise awareness among the younger generation about the inadequacy of the first pillar to sustain a lifestyle beyond basic needs beyond retirement, combined with fiscal incentives to encourage savings in third pillar financial products,” he explains.

Mr Farrugia says the strengthening of the first pillar is generally related to sustainability which depends in turn on the state of public finances, the amount collected in social security contributions, and the size of the active labour force relative to the retired population.

“In recent years there has been a healthy increase in the active population which currently stands at 62 per cent. Yet, in spite of the fact that pensions are being increased by Cola, the likelihood is that the purchasing power of the first pillar will decrease in time. It will be difficult to reverse this trend unless the country generates sufficient wealth to afford channelling more funds into the first pillar.”

Regarding the curbing of benefit fraud, which the government has promised to pursue, the MEA director-general believes that there must be the political will to do so.

“This may entail making difficult choices which might not be popular with a good section of the electorate. I do not hesitate to express my scepticism about the figure of 94,000 who are being branded as being ‘at risk of poverty’. This carries the risk of designing the wrong policies and spreading resources too thinly to reach those who are truly afflicted by poverty.

“I think that a better approach will be to identify the poorest segment of the population and make a focused effort – through fiscal and social means – to get these people out of the poverty line. It is easier and more effective to concentrate on a group of 8,000 persons than on 23 per cent of the population.”

He says benefit fraud could result from having beneficiaries who are not entitled to claimed benefits, or else those who are not using such benefits for their intended purpose.

There must be a political will to tackle benefit fraud even if this means making difficult choices which might not be popular with parts of the electorate, according to the Employers’ Association.

“Examples of the former would be persons who claim unemployment benefits and who are actually employed in the informal economy, or a single parent who under-declares his/her employment to retain social benefits. In such cases it is a question of surveillance and law enforcement.”

The second case of fraud, he says, can be tackled through policies that aim to channel funds into their intended purposes.

“This is why we proposed setting aside part of the children’s allowance into a child’s personal account. This should not be an issue to most responsible parents, but will not be popular with those who use children allowances for lotto and tattoos. There could be other similar measures to guarantee that taxpayers’ money is really being used to reach stated objectives.”

Mr Farrugia says the MEA has made numerous proposals in its budget document to curtail unnecessary bureaucracy. Furthermore, a separate document on this subject was presented to the Office of the Prime Minister last week.

The message should be that no one owes us a living

“These include a revision of the opening times of retail establishments, the introduction of an SME test for any legislation which is introduced, encouraging start-ups through an extension of the incubation centre, an activation of the micro-guarantee scheme, the introduction of set-offs between amounts owed by a business to one government department with outstanding payments from other departments and a more efficient processing of business permits.”

Regarding the government’s economic targets Mr Farrugia says that fiscal policy often presents the challenge of “sailing between the hazards of Scylla and Charybdis”.

He says an overly expansionary policy can stimulate short term growth at the expense of sustainable finances, whereas contracting expenditure for the sake of achieving fiscal targets can result in a self-realised economic slowdown.

“MEA’s memorandum to the political parties before the last elections consisted of recommendations that set the control of the deficit and public debt as a primary target. There are some encouraging economic indicators. For example, real GDP growth is projected to be 2.3 per cent during this year which is relatively high compared to other eurozone countries.

“Yet the government also faces some serious pressure to increase expenditure on health, education and welfare which may not be supported by increased revenues. Issues such as energy and public transport may also put it off track on its fiscal targets in the medium term. This makes it all the more essential to be more vigilant in controlling expenditure.”