In Monty Python and the Holy Grail, a dragon stands guard at the mouth of a cave, preventing the crusaders from getting on with their journey. Perhaps that is the sort of dragon professor Joseph Falzon, the dean of the Faculty of Economics, Management and Accounting, had in mind when he warned about the challenges facing the economy.

Prof. Falzon is also a consultant to the chairman of the Malta Council for Social and Economic Development, John Bencini, and was recently given half an hour in which to present to the Finance Minister a summary of the main points made by the MCESD members in their pre-Budget wish list.

At 4am on the day before the presentation, he was scratching his head, surrounded by a mound of reports which between them raised 194 proposals, with a further 246 suggestions.

He managed to cover them in four main categories (see adjacent boxes) and three less pressing ones – which he called ‘dragons’, an immediate hit with newspaper headlines.

The less pressing issues are not to be downplayed, he warned. They may not be as urgent but they are just as important – and are perhaps even more complex to resolve. Traffic and parking problems were, for example, repeatedly mentioned as these are causing a lot of wasted man hours.

A holistic plan is also needed to make the healthcare system sustainable in the long term.

“Tony Zahra of the MHRA had once wryly joked that perhaps the finance minister should pass a law saying that everyone should die on their 75th birthday… But his point was clear: we have to appreciate the cost of each added year in life expectancy,” he said.

Prof. Falzon said that several of the social partners were also frustrated with the lack of progress on pensions, saying that the best place to start would be with the third pillar pensions, introduced in last year’s Budget.

“There has been talk of second pillar pensions with auto-enrolment and opt-outs. That would basically make it a sort of third pillar.

We need a holistic plan for each sector and we need a coordinated vision to make sure they all work seamlessly together

“And the Opposition and UĦM are pushing for second pillar pensions. But there is still no agreement between the social partners on the second pillar and employers still do not feel that it is the right time to introduce it.

“We certainly need to do something and we should start with the third pillar. There have been a number of proposals made by potential providers and a lot of groundwork done. However, it was felt by the social partners that the government’s fiscal incentives were clearly not sufficient. We also need an educational public campaign,” he said.

Prof. Falzon also believes that more needs to be done to stem the flow of jobs from manufacturing and industry. “Value added per worker has improved – thanks to investment and automation by those companies which stayed. If we compare the value added per worker with other Mediterranean countries, manufacturing still comes out as a very good sector. And when compared with other Mediterranean manufacturing industries, then we rank fourth. But employment has dropped by as many as 10,000 jobs in the past decade or so.

“We have to take care of the engine of the economy: the export sector. It is useless to have leather seats and air-conditioning, if the car is not moving as fast as it possibly can.

“It seems manufacturing companies could eventually lose their tax advantage. And we are not attracting any more investment in the traditional manufacturing sector, in spite of the work being done by Malta Enterprise. If a factory closes, it is increasingly difficult to transfer those workers to the newer sectors like financial services and i-gaming.”

The professor acknowledged that there were new industries cropping up, such as film and aviation servicing, but warned that these needed to be carefully nurtured with more incentives.

He also expressed concern about financial services and the gaming industry, which are both vulnerable to changes in taxation – and neither of which are represented on the MCESD.

“If their tax harmonisation is imposed on us, what will that do to the financial services sector? Do we have a plan? Can we go to higher value-added? Here at the faculty, we are paving the way for our students to aim for higher value-added jobs, such as managing assets and not just back office work.

“I-gaming is another sector that we need to watch. The Finance Ministry is losing €130 million in VAT which is now being paid at the point of consumer consumption. What happens if this sector is affected?

“We need a holistic plan for each sector and we need a coordinated vision to make sure they all work seamlessly together,” he warned.

“Our GDP per capita is still half that of Germany. Isn’t that why we joined the EU? To aim higher? If there is economic development, everyone would – or at least should – benefit. Conversely, if there are problems which are throttling that growth, then everyone suffers. It is in everyone’s interest to get together and find solutions.

“We all know what the problems are and we all know what the solutions are. What we have to do is act on them,” he shrugged.

“The government cannot do them all at the same time, and some will take longer than others. But let us at least start somewhere.”

Lack of skills

MCAST offers 170 full-time and 300 part-time courses in 10 different industry sectors. The university has 11,500 students. There are 107 licensed institutions for further and higher education. ETC offers 50 courses in 15 categories. What am I missing? Anyone who wants to be trained or educated has more choices than ever!

That is the crux of it: “Those who want”. There are indeed many options for those who want to progress. But we cannot only look at those who go on to post-secondary or tertiary education!

We need to look at the 40 per cent who end up without a Matsec certificate. Unless we train them, they can never aspire to a well-paid job. Even the ETC will find problems helping someone who leaves school without being able to read and write. Why do we want economic growth? To filter down to workers as higher wages. And the only way to increase wages is to improve skills.

Another worrying trend is that even at university, 60 per cent of the students are females. Why is that happening?

Why are so many men not going on to post-secondary or tertiary education? And this is not a purely Maltese phenomenon. It is happening in the US and elsewhere in Europe. Why are our men getting discouraged or distracted?

It is everybody’s fault and nobody’s fault. We need to look at parents, teachers and even the curriculum. Do we need rote-learning and exams in this day and age, rather than hands-on projects, entrepreneurial skills and oral assessments?

For heaven’s sake, even at University our students have to handwrite their exam answers! Let us move with the times!

We need to engage them, to excite them!

Let us get some open space and let our young children be responsible for a practical project like growing rabbits, planting vegetables or selling flowers, so they can learn about running a business.

They would learn about the cost of feed and profits and business cycles and risk. That is how to nurture entrepreneurs…

Without skills, we are condemning these students to a whole life of precarious work.

Energy

Finance Minister Edward Scicluna has effectively ruled out more cuts in energy tariffs. He said that cost savings cannot be passed on to the consumer because these are needed to pay for the debts of the past…

We have been told that Enemalta needs to use the money to pay for the first Delimara power station (through the Special Purpose Vehicle created for this purpose). Only Enemalta knows the figures: it has not published its accounts since 2011 and they were certainly not passed on to the MCESD.

If the export sector is the engine of the economy, energy is the fuel. We have already seen that when Enemalta lowered the tariffs, it gave a positive boost to the engine.

But I would give any future reduction, not to households but to industry first – the contrary to what happened in 2014 and 2015, due to the government’s political commitment. If I had €1 million to offer, I would help the export sector first, as this will create more work and generate more revenue. Then the government can pass on that extra revenue to households if possible.

In the old days, if there was only enough meat for one person, it would be given to the bread earner, as that is who kept the rest of the family going!

Bank interest rates

Banks have a business model. How can you control private sector profits by insisting that they reduce the interest rate margin?

Several of the social partners strongly believe that the rate charged by banks on their loans to businesses is too high. In Germany, banks become partners of industry and take the long-term view. Businesses get cheap loans from savings banks, that then become their long-term partners.

The governor of the Central Bank of Malta, Josef Bonnici, has already pointed out that the interest rate on deposits is similar to that in the EU but that the rate on loans is 1.5 to two percentage points higher than the EU average.

It is not my place to get into this debate but we clearly have a problem.

The economy boomed in the past two years because the government reduced energy costs, cut income taxes and created more spending power. Imagine if the banks reduced the cost of capital by just one percentage point! How many more loans and investment would there be…

Government inefficiency

The government had by the beginning of this year implemented over 150 simplification processes – 70 per cent of the ones identified. Haven’t they made a difference?

There is a difference between bureaucracy and inefficiency. Very often bureaucracy is related to the layers required to provide checks and balances.

But inefficiency is about service, about the culture of trying to help the consumer. And inefficiency is resulting in a bloated public sector. The Malta Employers’ Association feels that the government is poaching people from the private sector, rather than the other way round, which is what it should be!

The reform should cover Mepa and the law courts. The Malta Chamber of Commerce, Enterprise and Industry has proposed the setting up of a privately-funded commercial court which would provide timely justice. If it is viable, why not go ahead? Companies cannot wait three to four years for a case to be heard and concluded.