The increase of €90.4 million by the financial sector in the first six months of this year to the national revenue was a lifeline without which Malta would have been facing a greater disaster than Ireland and Spain together, Labour MP Josè Herrera told Parliament on Monday.

During the first six months of 2010, the financial sector had increased its contribution to €214 million, or almost 20 per cent of the national revenue and this sector, in a few years it would overtake the contribution of tourism, thereby entrenching itself as a large part of Malta’s future.

Dr Herrera was speaking during the debate on the Budget Measures Implementation Bill.

He quoted the latest Economic Survey saying the economic growth of the last six months would result in a rise in both imports and exports. But from his own analysis, Dr Herrera maintained, Malta’s economic growth, especially if the deficit did not rise as much as expected, would depend only on the financial sector, which was responsible for real revenue and substantial growth.

This was a very delicate sector that depended on foreign funds. It included online betting, which would not last forever.

Three years ago the EU had almost wrecked the whole industry by preferring companies with foreign beneficiaries and low rates of tax. This was discriminatory against Maltese companies.

To date the EU had neither harmonisation of taxes nor a common policy on online betting. Besides the good service given and the professionalism shown, the only reason for this type of economic activity in Malta was the fiscal regime. In this regard Malta was playing with fire. The EU could yet order it to make changes because its double-taxation agreements were hurting the other 26 member states which were not getting any revenue.

Most of Malta’s financial services were based on online betting, relaxation and entertainment. The industry had seen a veritable explosion, more so when France had tightened the belts. Malta was being criticised as almost a pirate state, accommodating foreign companies with just an address. The industry was paying over €70 million to the Malta Gaming Authority, besides millions of euros in tax. Now this important industry was hanging by a thread.

Dr Herrera said new EU directives or regulations could mean Malta being knocked out or losing everything overnight. From a small niche in 1987 the financial services sector had grown into an industry and then a super-industry, which was now expanding in an exaggerated way. The government would fail without it, leading to consequences much worse than Spain or Ireland.

The government could expect the opposition’s full cooperation for the sector, but it was still worrying that one-fifth of the national economy depended on the sector, which could possibly rise to one-fourth or one-third in a few years’ time if no alternatives were identified.

Dr Herrera said another Maltese industry that was hanging by a thread was construction. On the Irish problem economists had said that banks had lent too much to the construction industry, which now needed some €10 billion to save. Prices had become over-inflated, supply had outgrown demand, and there were now some 300,000 empty properties.

With 60,000 empty properties the situation of the construction industry in Malta was even more alarming. If Malta had a population of four million like Ireland there would be 600,000 empty properties, double Ireland’s tally.

There was a danger that foreign bodies might come and buy up Maltese properties.

In the past few years the Nationalist administration had taxed property too highly and repeatedly, rendering it unattractive to foreigners instead of helping the real estate market. Only six-star properties were selling, and the construction industry was surviving by a miracle. If companies with hundreds of employees failed Malta would face a catastrophe.

Dr Herrera said the high-yielding financial services sector was creating a new middle class without employing many people. Up to 20 per cent of national income was being earned by only two to three per cent of the population, but many of these jobs, as in betting and financial services, were being snapped up by foreigners. Through the financial services sector Malta could make ends meet and control the deficit, but there would be a bigger unemployment problem if it depended too heavily on this industry.

Dr Herrera made allegations of rampant nepotism in the gaming sector (see yesterday’s The Times).

Turning to e-commerce (online shopping), the Labour spokesman said this had been going on for quite sometime. A company by the name of Alert launched a website called MaltaExpo to provide e-commerce. This company was assisted financially through the Ministry of Communications to launch this project. The excuse seems to have been that no one else was offering such services.

When this website was closed the same company, Alert, launched another website Trolleymania, assimilating the work of MaltaExpo and entering into a private-public partnership. This was given €300,000 to launch the project.

Dr Herrera queried why should the government subsidise considerably a private company to compete with other private companies in the same sector. Another website, MaltaSupermarket was one example of private investment which now faced unfair competition.

He said that with the financial services sector suddenly having become the fastest-growing in the country, sharks were seeking to grab the market. The regulatory authorities must be much sharper and seek to sever all nepotistic contacts.

This was a government malady in many sectors. Maybe it was a symptom of a government having been in power for too long, becoming arrogant and letting itself be influenced by people holding vested economic interests who wanted the government to stay on.

The next general election would be a do-or-die situation, warned Dr Herrera. The same could be said of consultancies which were costing the exchequer millions of euros. Die-hard Nationalists were frustrated at not being in the inner circles. Instead of being reduced, nepotism had exploded with the creation of institutions and agencies to show a semblance of transparency and accountability.

Even with his limited powers, the Auditor General was not taken seriously. Heads would have rolled in any other country. This was wrong. Eyes must be kept wide open so that all would know the scandal of what was happening.

Turning to the final aspects of the maritime sector, Dr Herrera declared a personal interest in that he represented boat owners of the Msida Marina. He said there were already questions about how the government was giving away a lucrative industry in new marinas still being developed. In this area, too, it must be transparent and give everybody a chance.

Professionals with vision and foresight had found ways of creating out of nothing an industry that had saved the economy, he said.