Shadow economy minister Claudio Grech and Finance Minister Edward Scicluna explain their respective parties’ economic and fiscal proposals

Claudio Grech believes it would be a mistake to bring about radical economic shocks to the system in the event of a change in admi­nistration after the election, but that the time has come for a new approach towards the economy.

“We need to think entirely out of the box, to create new economic sectors, to diversify our economy and to make sure it is sustainable in the long-term,” the Nationalist Party’s shadow minister for the economy says.

“We acknowledge the positive things that took place under this government but we believe we must look at how to develop new economic sectors. Let’s see how to take sectors such as financial services, gaming, ICT and aviation – all of which were created under a Nationalist administration – to the next generation, but at the same time, and this is the key point, let us diversify our economy.”

He says the PN is committed to the creation of 30,000 “quality jobs”, most of which will come from new economic sectors.

“We have a number of new sectors in mind. The first is Fintech [financial technology]. We have a clear strategy how we can transform our capabilities in the financial services industry and the IT industry and converge them to create a regional hub. Fintech is a sector which is developing at a rapid pace. We are looking at how to attract these platforms and how to create a regulatory edge over other jurisdictions.

“Another area is digital media, how to establish a cluster of digital media operations in Malta. Many students in Malta graduate in Arts disciplines but many don’t end up in high-end jobs and this is one area which could offer such an opportunity.

“A third sector is social enterprise, where you use the enterprise mindset for the attainment of social goals. For example, community care, which the country is crying out for. There’s a huge potential here.

“Other sectors are the sports industry and the Internet of Things – which is about connecting devices over the internet, letting them integrate with our devices, applications and each other.”

Will a PN government continue with Labour’s trend of over-relying on the construction industry for economic growth?

Mr Grech says the PN’s economic policy has placed the environment as a “critical differentiator” even in the property market.

He explains: “We cannot make this country unliveable, it is pointless having a lovely apartment and then when we step outside it is unliveable.

“We are keen on converging these two elements of having liveable open spaces and at the same time creating demand for middle- to high-end property – which will be strong with a PN government encouraging the growth of new economic value added sectors.”

Asked if he believes the PN promise of a surplus every year as well as a constitutional amendment to keep a balanced budget would impose a straightjacket on the eco­nomy, Mr Grech says: “If a country does not have fiscal discipline it can’t maintain its economic development.”

I firmly believe that our international reputation has been one of the core drivers of our economic growth

He says the PN philosophy is that public recurrent expenditure should be controlled as much as possible and the focus of that expenditure should be on strengthening the social net, such as pensions, healthcare and social services.

“The key word is discipline. If we adopt an excessively liberal policy in the way we manage finances we know how some countries ended up. However, there are exceptional circumstances where a deficit would be permissible, such as what we experienced in 2009 due to the international economic climate.”

The PN has promised a number of tax reductions in this electoral campaign. Those earning between €9,100 and €20,000 will pay just 10 per cent income tax, and this will cost the Treasury €44 million, while tax relief for all categories of  self-employed –10 per cent tax on profits on the first €50,000 – will cost the government €83 million. Can the country afford these measures?

Mr Grech says the PN has calculated that its proposed tax relief for the self- employed would result in the government’s net income increasing.

“Do you know how many companies and self-employed in Malta pay some sort of tax on profits? 9,000. That speaks for itself. We have about 90,000 such companies and 20,000 self-employed. The tax due from these companies and self-employed would be much greater than the €83 million forgone.

“We are pushing for a change in philosophy; tax evasion is harmful. We are pushing for fairer taxation. We have a 35 per cent tax rate on Maltese businesses, and we believe that with a fairer tax regime, we as a country will generate more income. We believe the money from tax relief will be reinvested.

“We are absolutely convinced about this and we also believe that local businesses need to gradually be put at par, in terms of the tax rate, with foreign businesses opera­ting in Malta.”

Asked whether it was fair for an employed accountant or doctor earning up to €50,000 a year to pay more tax than a self-employed accountant or doctor making a profit of up to €50,000 a year, Mr Grech says that when an individual decides to invest in a business there’s an element of risk that one needs to look at.

“People need to be given an incentive to start up a business,” he points out.

He was asked whether the employee tax cut will apply to the first €20,000 earned or to those earning up to €20,000: “As the proposal stands today it is for employees earning less than €20,000; it is not an adjustment in the tax bands. The party wants to give a strong push to the lower income earners because that will facilitate stronger social mobility.”

Simon Busuttil has said a PN government would not scrap the passport scheme but rather ‘clean it up’. What exactly does he mean?

“Definitely the scheme will not be scrapped, but it will be aligned to what its name actually suggests, namely an individual investor programme. Our intent is to revise the scheme to ensure that there is a degree of productive investment in Malta. We will be building the final parameters of the scheme, in full consultation with the respective stakeholders.

“We want to create a stronger bond between whoever is investing and the country. The current scheme is not an investor programme, it is a citizenship purchasing programme.”

Mr Grech warns about the importance of Malta’s international standing and the corruption allegations that have overshadowed the election.

“I firmly believe that our international repu­tation has been one of the core drivers of our economic growth. I feel we should be very forceful in never talking down our country abroad. Ultimately we are one nation, one country, and we should do our best to defend our country’s reputation.

“After the election, irrespective of the outcome, we need to heal our divisions, and we need to elevate out bread and butter issues beyond petty political bickering. Out there the competition is huge and we have to fight for our patch. The PN strongly defends Malta, such as when our fiscal regime is unfairly attacked by other jurisdictions.

“After June 3, we need to create more of a visionary approach towards things. The corruption allegations are not nice for Malta and there are doubts about the stability of the jurisdiction, but we should never talk down our country.”

If Labour is re-elected what will that mean for our reputation and economic prospects?

“We believe we are going to be elected. If Labour is re-elected it will still be dogged with the current issues and this is not a nice prospect for our economy.

“However, I am confident that people will appreciate our economic plan and give a strong vote of confidence not only to the PN but also to the capabilities of the Maltese people to create new economic advantages and deliver economic growth that is distribu­ted more fairly,” he says.

Main highlights

■ No shock economic measures.
■ Diversify the economy.
■ Promote liveable open spaces.
■ Control public recurrent expenditure.
■ Tax cuts will increase government revenue.
■ Passport scheme linked to productive investment.

‘The country is moving forward’

Edward Scicluna sits down on the sofa at the Finance Ministry boardroom with a bunch of papers and a calculator in front of him.

On the papers he has jotted down notes and figures, which he later uses to explain his concerns about the Nationalist Party’s electoral pledges.

But there is another concern I raise about the reputational damage caused to Malta by the Panama Papers scandal and its spillover, the Pilatus Bank revelations.

Prof. Scicluna says part of the problem has a legal side to it and this will have to be settled in court. But the matter also has a political side to it, he adds.

“Whoever takes a decision has to shoulder responsibility for it. [The decision] could have gone one way or another, and whichever way you choose you have to pay a political price. But what bothers me more is that the matter was pushed abroad by fellow Maltese, and this gave those abroad interested in undermining our competitive tax system fodder to attack us.”

Prof. Scicluna does not flinch when I suggest that the European Parliament’s Pana committee had nothing to do with Maltese pushing the issue abroad.

He says the terms of reference of the Pana committee spoke of tax avoidance and evasion regimes, and not personal cases.

He mentions the controversy that erupted in the last days of the French presidential campaign when Marine Le Pen accused Emanuel Macron of owning an offshore account.

“As far as I know the Pana committee did not summon Macron to explain himself and they would not even dare to do so. Yet, when an allegation is made against the Maltese Prime Minister’s wife, the committee summons him in the middle of an election campaign. Why do they do this? Because Malta is a small country and this attitude is only made worse when Maltese MEPs fan the fire.”

Why should anyone want to stop this progress?

Prof. Scicluna says his concern is the impact of this bad publicity on the financial services industry.

I ask him whether the Prime Minister’s inaction over Konrad Mizzi and Keith Schembri blew wind in the sails of competitor countries wanting to bully Malta.

“I do not condone wrongdoing but it is the electorate that has to pass judgement,” he says.

We move on to the economy and the Opposition’s criticism that the government has failed to attract new niche industries and sectors.

Prof. Scicluna disagrees. He says the government has targeted the health and tertiary education sectors by attracting foreign investment.

The reference is to Vitals Global Healthcare and their takeover of the Gozo, St Luke’s and Karin Grech hospitals, and the Jordanian investment in the American University of Malta.

“The country has tapped foreign markets in so far as English language schools are concerned and now we want to do the same for tertiary education,” Prof. Scicluna says.

Having foreign students living here for nine months of the year creates a spillover effect.

The same holds for hospitals that will target a regional market, he adds. “Health services are in great demand across the Mediterranean and Malta can serve as a medical centre for the well-off seeking quality care elsewhere.”

And what about the reliance on the construction sector to fuel growth?

His reply surprises me. “I wish it was growing as fast but it is not and this is why rents are going up because supply is not keeping up with demand.”

He says the feeling that Malta is experiencing a bubble is understandable because the country is riding a wave. However, he says the country is not in a boom.

“It is as if we have grown taller and all of a sudden we are feeling all wobbly. We are awkward until we get used to this standard of living and maybe because it has come so fast in such a short time we justifiably ask ourselves whether this is here to stay.”

He says investment has grown all around and the impact is here to stay. This is no flash in a pan, he adds.

I ask Prof. Scicluna about the sustainability of the Labour Party’s electoral promises as a bemused electorate looks on to see what is on offer by the major parties.

He insists the proposals are costed and targeted to fuel growth. More so, he shuns criticism the pledges are Christmas goodies, insisting they are what the country can afford.

He says the tax refund pledge will benefit 190,000 workers earning below €60,000 but more importantly those earning the least will be getting more. “This is socially just because even those who do not pay tax will receive the maximum refund of €340 while those earning the most will get €200.”

This proposal will cost €46 million and will be phased in, Prof. Scicluna says, so that the country would absorb the impact gradually.

However, he insists on comparing this approach to the PN’s tax and pension pledges, which he says will lead to “a fiscal black hole of €340 million”.

A PN government, he warns, will either decide to run an excessive deficit, raise other taxes like VAT to avoid the financial black hole or find an excuse to implement none of the pledges.

“We use drip irrigation to fuel growth while targeting the sectors that need a push while the Opposition is promising to use a sprinkler without telling us where the water will come from,” he says.

On the PN’s proposal to tax the self-employed at 10 per cent, Prof. Scicluna says it introduces “a classic corporation tax regime”, which the country does not have.

“Financial services practitioners are livid because this proposal was made without consultation with the industry and it undermines the case we have always made in front of the OECD and other foreign institutions to defend our tax system,” he says.

But he also criticises the proposal from a social perspective because professionals who earn a lot will be taxed much less than salaried workers.

Donning the hat of Finance Minister, he worries about the pledge to introduce the measure in the first year.

“The country cannot afford an €85 million loss in revenue in one year; it is simply impossible,” he says.

Prof. Scicluna is also baffled by the PN’s free childcare proposal for all mothers, which he fears will reverse the positive impact of the measure introduced three years ago to encourage mothers to join the workforce.

Prof. Scicluna argues that “the trick” adopted by the government in the outgoing legislature was to take targeted measures that gave the economy more in return.

Why should people trust Labour for another five years?

“Because they have seen it work. The country is moving forward. Why should anyone want to stop this progress when the Opposition is not even giving any assurances that it will keep the economy going at the same pace?”

*The interview was conducted last Thursday, before the Malta Files story broke.