Labour MP Alfred Sant challenged Finance Minister Tonio Fenech's claims that the EU directive on services in the internal market was an opportunity to Maltese businesses and not a threat as Malta's relatively small population would be entitled to compete on much bigger markets.

He was speaking during the debate in Parliament on the second reading of the Services (Internal Market) Bill, which establishes the general provisions facilitating the exercise of freedom of establishment for service providers and the free movement of services in the internal market. It also provides a framework of principles on which the internal market could develop.

Introducing the Bill a month ago, Mr Fenech had said he expected the directive to give Malta an impetus to continue to develop in a market which was far greater than Malta's, especially because there had been heavy investment in human resources and education and training of employees and students.

Dr Sant said he remained speechless hearing the minister present such an argument. It was a shame that the government had left the debate on this directive to the very last minute, knowing full well that this must be transposed into Maltese legislation by next January and that the remaining weeks would be dedicated to the Budget debate. This was indeed an important piece of legislation as it would affect mostly the professionals and the small self-employed.

Dr Sant said the government did not even have the decency to present to the House an assessment of the impact this directive would have on the small self-employed. This situation is exacerbated by the fact that, once the directive became a part of Malta's legal framework, it would be an enabling law where the minister would have to issue all regulations the EU demands.

Ireland had, in fact, carried out such an assessment and he had expected the government to present the House with a study showing the impact the directive would have on the economic, social and financial sectors. But the government did not deem it fit to do any research.

When the EU directive on goods into the internal market was being discussed in Parliament, the government had made the same claims. It had said Maltese manufacturers would have a market of 400 million to sell their goods to; the local market was too small for the big foreign manufacturers to bother to infiltrate it.

If this had been true, then the trade gap would have contracted. But this was not the case.

Illustrating his argument, Dr Sant quoted NSO and Eurobarometer statistics which showed that the commercial deficit, excluding transport and fuel, was an average of €845 million for the three-year period 2002-2004. But this shot to €1,190 million for the years 2005-2008. This latter negative figure would have been worse were it not for the fact that the service sector registered a positive average of €800 million for 2006 and 2007. The minister's perceived benefits were nothing but bluff.

Dr Sant also accused the government that it was discriminating against the small Maltese entrepreneur because Malta Enterprise was creating insurmountable hurdles. He hoped that the same would not be repeated in the implementation of the services directive.

The House was not given a serious and concrete explanation as to how this legislation would be implemented. In reality, its implementation would not be transparent. It would indeed stifle the local services sector.

The goods directive provided for an electronic contact for foreign professionals. But do the local small self-employed enjoy the same treatment?

Dr Sant said that he is often told that the Maltese do not have a one-stop shop. The interests of the Maltese self-employed were being ignored. What mattered to the government was that the goods directive was implemented.

The government was escaping reality because the production machine was not taking off. The global recession was masking local deficiencies and in the meantime the local economy was contracting. Ideas were lacking as to how to link such a directive with economic and commercial development.

Small businessmen were carrying the whole burden. Beyond the amateurish way things were being handled, small Maltese businesses deserved to be treated better. No new investment was being pumped to sustain that which was being produced.

Dr Sant warned the government to be careful how to implement EU directives. He asked the minister to come up with a coherent plan to sustain Malta's productive machine.

Opposition finance spokesman Charles Mangion agreed with Dr Sant that it was important that every EU directive be evaluated against an impact assessment. Malta was at a disadvantage because its size did not present economies of scales. For the economy to expand one had to rely on the tourism industry.

It was everyone's duty to see that those operating in the local market are not disadvantaged. While economic expansion should be encouraged, one must see that under the directive everyone is afforded the same treatment. The government should see that Maltese seeking to expand outwards are given the same facilities as it affords foreign businesses wanting to penetrate the local market. This applied both to licences and financing, knowing that to setup shop abroad was far more costly than starting up in Malta.

Dr Mangion said Malta had 50 per cent of all employees in the servicing industry primarily aimed at the local market. The government did not even evaluate the amount of money which would be transferred abroad, the amount of value added and how the economy was expected to expand.

The Labour MP warned the economy was not expanding: manufacturing had fallen, hotels and restaurants' profits were down by some €115 million and this affected wages and profits. The country was in a recession which was putting a heavier burden on the wholesale and retail sectors as family purchasing power had shrunk.

Instead of curtailing bureaucracy, the government had increased it to the detriment of small business. Business could flourish if the consumer was in a position of using the service effectively. Consequently government revenue would also increase.

The international recession had negatively affected the manufacturing and tourism sectors. The country experienced a negative economic growth during the last quarter of 2008 and the first two quarters of 2009.

Dr Mangion said it was the government's duty to stabilise the market in such an uncertain scenario. On the contrary the government irresponsibly increased utility tariffs in October 2008 when the international price of oil was falling. Importation of consumables decreased during the first three quarters of this year with the wholesale and retail sectors experiencing problems.

The government made the wrong calculations and was guilty of misjudgments. This also made the government the largest contributor to an increase in inflation.

Dr Mangion said that Malta was the only EU member state to increase its deficit, which now amounted to €4 billion. This meant that one third of revenue from income tax had to be used to pay interest to service this deficit. Taxpayers were paying more indirect taxes when they were earning less.

Prices of essential products decreased in the eurozone but in Malta these products including foodstuffs and medicinal products continued to increase.

Enemalta enjoyed monopoly in the energy sector and, Dr Mangion said, the government was duty bound to inform the House what was paid for imported fuel and whether any hedging had been applied.

He accused the government of doing a disservice to families and to businesses by withholding such information on the premise that it was of a commercial nature. Business needed to know what tariffs, licences and other services would cost them so that they could plan ahead.

The opposition, said Dr Mangion, was justified in calling on the government to create a climate conducive to increased investment in order to have economic stability. This was more urgent when one considered that the government generated activity accounted for 49 per cent of the GDP.

The government was irresponsible to announce an increase in utility tariffs just two days before presenting its budget without giving an indication of the amount. The only indication by the Malta Resources Authority (MRA) was that tariffs would increase by about 20 per cent. This meant that the government would increase its revenue from utility tariffs by €85 million. This decision in itself created instability, insecurity and uncertainty.

Dr Mangion was followed by Nationalist MPs Ċensu Galea and Edwin Vassallo with Finance Minister Tonio Fenech winding up the debate. (They will be reported in future issues).

The Bill was unanimously approved.