Malta’s open economy means that we are often affected by extraneous events that we cannot control. Whether tourism will increase again in 2022 depends more on how the COVID pandemic evolves in Europe than on anything we do locally. Whether inflation keeps rising at a more worrying rate depends on the dynamics of market forces beyond our control.
As we look ahead to 2022, however, three issues endemic to our economy will need to be addressed.
The first relates to the future of Air Malta. The national airline has been in restructuring mode for more than 20 years now. There is no shortage of political bickering about why the company is in the sorry state it is in today.
The setting up of Azzurra Air and the purchase of unsuitable aircraft more than two decades ago, the indiscriminate over-employment by different administrations to promote political patronage and the strategies that failed because they were not well thought-out are just some of the reasons often quoted by analysts for the present difficulties faced by the airline.
The sobering reality is that the airline industry in Europe today only guarantees survival for the fittest.
The government has still not updated the public on the state of play of negotiations with the EU competition authorities and the conditions that are likely to be imposed on Air Malta to continue flying. One can only hope that Maltese taxpayers will not be made to continue financing losses at a time when fiscal pressures are likely to escalate in a post-COVID economic scenario.
The second challenge is the next round of support needed to keep businesses open and workers in employment, given that the end of COVID is still a mirage. The government has extended the COVID wage supplement scheme until the end of January. There is little doubt that this will not be sufficient to buffer the worst effects of the persisting pandemic. The government has already hinted that it will be ready to step in and provide more support to those who need it.
Predictions made in 2020 that COVID would be behind us in the short term are proving to be too optimistic. Of course, this development is not just a local issue. The EU seems to be moving toward changing the fiscal rules to ensure that orthodox budgetary policies do not stifle economic growth.
But every country has to start discussing how it will spread the burden of repaying today’s necessary expenditure to keep the economy buoyant. Organic economic growth may not be enough to spare future generations of taxpayers from massive debt-servicing obligations.
A third challenge is the prospects of Malta’s golden passport scheme. This scheme has helped the flow of money in the public coffers but also created antagonism in many other EU countries.
The European Commission has indicated that it will challenge the scheme in the European Court of Justice. The government has stated that it will stick to its guns by insisting that passports and citizenship are sovereign rights exercised by individual member states.
Until this matter is resolved, the scheme’s attractiveness for third-country prospective applicants could be diminished. The reduced income from the scheme would only increase pressure on the government to raise taxation to finance its various public expenditure projects.
Commitments not to increase taxation help calm the nerves of taxpayers and the sentiments of voters. Still, sooner or later, we have to face reality. Hopefully, the taxman will fill the fiscal gaps by taxing wealth rather than work.