Entitlement, wages and sovereignty

Employees today feel they are entitled to work-life balance. Only hard work creates wealth, jobs and growth in any business or country. Now that people have learnt about this work-life balance idea they feel the need to have it, especially as everybody else in the EU has it, they think. So employees feel keenly about this balance.

Nothing unsettles investors more than uncertainty. It is in the greatest interest of our economy and industry that the election be called earlier rather than later.
- David Marinelli

The inhabitants of our islands have lived under the yoke of powerful rulers since 1530. First came the Order of the Knights of St John and then the British. The inhabit-ants felt that it was morally acceptable to cheat and steal from their rulers, and at that time it probably was. Then came 1964 and Malta had its first democratically-elected sovereign government. Over this 500-year period everything has changed and remained the same.

People still feel that they should not contribute to the common good. Why should they, if they can get away with not contributing? Ergo, people feel that the Government owes them a living and therefore they are entitled not to contribute to the national coffers and still benefit. It seems that this idea of entitlement is not really what we should be encouraging as a country. It is one thing to be helping people to whom life has dealt a bad hand and quite another to encourage the abuse of the welfare state. It torpedoes hard work, provides undeserved reward and is a dead weight on the economy.

The total government revenue for 2011 was €2,572.7 million. Total expenditure was €2,746.5 million. The deficit was €173.8 million. The way an economist would calculate this in percentage terms would be as a percentage of GDP, i.e. 2.7 per cent for 2011. As economists have been largely discredited by failing to successfully advise EU governments out of the economic crisis, I would propose that this number, because of its low value, gives us a false comfort level (my apologies to the economists who know better and are living in the shadows or ignored by governments). I will adopt an accountant’s approach.

In our profession we do not express losses or profits of a business as a percentage of the business’s clients’ turnover. We express losses as a percentage of a business’s own turnover. The reason for this is that this gives us a better indicator of the extent of the problem. Using this approach, we can see that Malta had a deficit (loss) of 9.4 per cent and 6.8 per cent calculated on total revenue for 2010 and 2011 respectively.

Interestingly, we also see that the cost of covering compensation of employees was €840.4 million in 2010 and €870.1 million in 2011, and that this constituted 31.7 per cent of total revenue. The number of public sector employees was 41,123 in Q4 2011 and the average cost to government per employee was therefore €21,158 annually.

Public sector employees make up 27.5 per cent of the total of gainfully employed people (149,764) in Malta. The ratio of private sector gainfully employed people to public sector employees is 2.6:1, roughly one public sector employee for every two-and-a-half private sector gainfully employed people. The government has recently agreed to grant a raise to public sector employees that would increase its compensation of employees cost by €60 million over five years.

Our country has a surface area of 316 square kilometres. In 2011, compensation of employees cost taxpayers €2,753,481 per square km of Malta. This is what the country’s employee costs are to manage each square km.

There is a draft EU agenda on the table that would have eurozone countries sign binding contracts with Brussels that would commit them to a detailed fiscal reform programme. If implemented, it would radically increase Brussels’s control over Malta’s economy. I hope such a transfer of sovereign power from our elected representatives would at least be put to a referendum and not be passed through our Parliament as if it were a normal administrative matter. Here we are faced with an insidious threat that Parliament may approve financial manoeuvres that could have as a consequence a transfer of power away from our representatives, and the latter implication may not be as apparent as it should be.

I have heard so many times – too many times – that it is better for Malta to be managed by Brussels as at least some things get done and, as a country, we perform to a higher standard. This demonstrates the dramatic lack of confid-ence that the electorate has in its representatives in spite of 97 per cent turnouts at elections. It also demonstrates the dearth of information that exists on the consequences of a loss by our country of its sovereignty.

Our financial services sector has done well also because the country has managed to portray an image of economic and political stability. Prospective and present foreign investors have their eye on our economy and are making enquiries about its resilience.

There is concern as to whether the debt and banking crisis has hit our shores and to what extent. The first concern of any foreign investor is currency and country risk, the latter very closely linked at this time to the economy.

Nothing unsettles investors more than uncertainty. It is in the greatest interest of our economy and industry that the election be called earlier rather than later.

Mr Marinelli is chief executive of Portman International, a financial services group.

General Government Balance Revenue Q1 - Q4
Q1 - Q4

2010 Eur millions % 2011 Eur millions %
VAT & Duties 836.0 34.5% 905.2 35.2%
Income Tax 807.8 33.4% 849.4 33.0%
Social contributions 456.4 18.8% 486.6 18.9%
Capital & current transfers 131.7 5.4% 127.7 5.0%
Other 189.4 7.8% 203.8 7.9%

Total revenue €2,421.3 100.0% €2,572.7 100.0%

Compensation of employees 840.4 31.7% 870.1 31.7%
Intermediate Consumption 376.0 14.2% 419.2 15.3%
Social Benefits 847.0 32.0% 881.3 32.1%
Subsidies 66.8 2.5% 63.9 2.3%
Interest 186.2 7.0% 200.8 7.3%
Other 332.6 12.6% 311.2 11.3%

Total Expenditure 2,649.0 100.0% 2,746.5 100.0%

Deficit (% is on total revenue) -227.7 -9.4% -173.8 -6.8%

Private Sector gainfully employed

108,641 72.5%
Public Sector employees

41,123 27.5%
Total gainfully employed

149,764 100.0%

Source: Central Bank of Malta; National Statistics Office


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