The government should conduct a tax elasticity exercise to determine the impact of a revision on income taxes to increase the disposable income of middle income earners, the Malta Employers’ Association said yesterday.

The public sector is still bloated and generally inefficient

In its proposals for next month’s Budget, the MEA said: “Pushing up the ceiling of the 35 per cent band would increase aggregate demand. Even if it is argued that the multiplier effect resulting from increased consumer expenditure in Malta is low, the measure will also act as an incentive to increase the supply of labour, especially among young women, as the returns on labour will be higher and increase the opportunity cost of staying at home.”

It said this should be given a higher priority than allocating funds for the public sector collective agreement, and in itself, should reduce the burden of such an expense as many grades in the public sector will also be benefitting from the tax deductions.

The MEA also called on the government to consider paying part of the expense related to maternity leave to relieve employers of this cost. Malta, it said, is one of the few countries where maternity leave is paid in full by the employer. Such help by the government, it said, “will lower the cost of family friendly measures and also reduce the gap in the relative cost between employing males and female employees”.

The MEA said it supports the view that an enhancement of family friendly measures is necessary to induce a higher activity rate, in particular among the female segment of the labour supply. This is a precondition to having a sustainable welfare system, provided that sufficient jobs are generated to cater for an increased labour supply, it said.

“It is important to distinguish between two main categories of family friendly measures – those that encourage people to stay away from the place of work (such as extended maternity and parental leave and career breaks) and others that incentivise stronger attendance (such as tax incentives and child care).

“The latter have been proven to be more effective in retaining and attracting people in the labour market, since long breaks often discourage people from returning to the labour force. The distinction between these two types of family friendly measures is of strategic importance, since the design of such measures will have an impact on their effectiveness.”

The MEA is proposing that the main thrust of family friendly measures should be in the direction of incentivising attendance, rather than absence. The Budget, it said, should consider increased incentives for private sector investment in child care services and tax incentives or subsidies for affordable child care services at community level or at strategic locations.

The government should also extend school opening hours to provide the option – possibly at a charge – for parents to leave their children to be looked after at school. This can be achieved by offering extra payment to teaching and school administrative staff to man these hours.

“These measures, combined with others which employers may implement at the workplace (such as flexible hours, reduced hours and teleworking) will be more effective in incentivising stronger female participation than simply extending family friendly measures applicable in the public sector (such as five year career breaks) to the private sector, which would be impractical and work against the employment of females,” it said.

The MEA said the public sector is still bloated and generally inefficient and any increases in labour costs in the public sector should be aimed at increasing productivity and to be cost neutral through a decrease in the number of persons employed in this sector.

It said the government also has to tackle the issue of debts arising from public enterprises such as Enemalta. “Part of the debt generated by these entities is owed to international sources and this increases our exposure. Moreover, the consumer is being made to pay for the inefficiencies of these organisations,” the MEA argued.

The MEA also called for the setting up a business driven embassy in Tripoli and of an entrepreneurship fund to incentivise business in Libya. The government, it said, should consider temporarily re-introducing the income tax incentives which were available to Maltese working in Libya.

It reiterated its position that education expenditure should be subject to an audit to measure the effectiveness of the investment, and to ensure that funds are being used efficiently and directed to areas where they are most effective in building careers. The idea of grading courses according to their employment potential should be considered.

“The wisdom of opening the B.Ed courses to all applicants is questionable, and acceptable only if it is made clear to applicants that there is no guaranteed job if they follow that course. The government cannot afford to become an employer of last resort,” it said.

Emphasis should be given to reduce the number of early school leavers and to direct students – from an early stage – towards disciplines which match the requirements of industry. It said only four per cent out of the total student university population are taking engineering and another four per cent are taking ICT.

The MEA called on the government to consider reviewing the stipend scheme to ensure its sustainability and find ways to increase the incentives to students to follow courses that are more aligned with the future needs of the economy.

It said the government should protect the interests of legitimate businesses from those who profit by benefitting from legal loopholes or breaking the laws. “The vast majority of companies in Malta are law abiding and are the source of decent employment,” it said.

The Association called for equal treatment of cargo being handled by the catamaran and other means of entry into Malta and pointed out that parallel traders are still bringing in regular stocks of goods and bypassing customs.

“In spite of restrictions on tenders, many companies still complain of unfair competition in the awarding of tenders to others who are offering substandard conditions of employment – even in the public sector. It is in the interest of both companies and employees that there should be a level playing field among potential applicants for tenders,” the MEA said.

It said the situation at Air Malta needs to be resolved in the shortest time possible in order to bring it back to profitability as fast as possible. The MEA stressed that the airline is a key strategic asset to the country and needs to become viable as soon as possible.

In spite of schemes to provide access to funding to SMEs there is a need for a strong communication effort to make SMEs and micro enterprises in particular more aware of what these schemes offer, the MEA said.

“Access and availability of funding is still an issue in Malta and the right environment should be set up for the creation of venture capital funds and other instruments of funding not just by the government but also by the private sector.

“The MEA encourages the government to look at foreign institutions and to attract such companies to Malta.”

The association said the Budget should send a clear message that although the economy has shown resilience in view of a hostile and volatile international situation, people should not raise expectations unrealistically.

“In spite of relatively low unemployment, increase in real GDP growth plus an increase in exports and tourism, the situation remains precarious and will remain so in the foreseeable future.

“Many companies who are stretching their resources to afford the COLA, among other cost increases cannot possibly face further cost pressures through collective agreements. All the social partners have to act responsibly in such circumstances. The key to our survival remains our flexibility as a small economy and competitiveness,” it said.