The Chamber of Commerce, Enterprise and Industry welcomed the underlying priorities of the 2016 Budget, pointing out that fiscal consolidation, strong economic growth and better living standards for all were “similar to the objectives the Chamber itself proposed”.

The Malta Employers Association also hailed many aspects of the Budget, stating that it was a reflection of positive developments in the Maltese economy.

Both organisations, however, expressed their reservations over the fact that the country’s transport problems had not been addressed and that the price of fuel had been increased. The Chamber regretted the fact that energy tariffs had not been lowered.

Kevin Borg, director-general of the Chamber, told The Sunday Times of Malta that “the Chamber noted with regret that specific measures it proposed were not taken up, to the detriment of Malta’s general competitiveness position”. These areas, he said, include solid investment in solving the traffic problem in Malta, the reduction in energy prices and research, technology, development and innovation.

Mr Borg said that the increase in duty on fuels “seems to raise the minimum level of prices somewhat permanently and will be a threat to competitiveness rather than keep vehicles off the roads”.

The price hike, he said, is an avoidable mea­sure that will only serve to undermine Malta’s competitiveness. Mr Borg said that the Chamber does not accept the argument that the fuel price hike is a traffic mitigating measure.

“Commercial vehicles have no choice but to operate on the roads to provide their ser­vices. The long-term solutions to the problem do not lie in a series of knee-jerk reactions. Consequently, the Chamber proposed that funding for an integrated traffic plan is included in the Budget,” he said.

Mr Borg said the Chamber is “utterly disappointed” at the manner in which the change in the eco contribution system to an excise tax system was announced and the lack of consultation on this matter. This, he said, was in spite of the Chamber’s repeated calls during the pre-Budget consultation process for the government to avoid any surprises in the Budget that could bring business to a standstill.

“When the government participated in constructive talks regarding the removal of eco contribution from WEEE products, the outcome was both environmentally neutral and business friendly because, in that instance, no excise tax was needed to replace the eco contribution.

“The Chamber supports the principle of transforming the eco contribution regime into a more efficient and enforceable form of taxation but besides being easier to enforce, one cannot classify this Budget measure as efficient. This is because responsible operators that self-complied or subscribed to a private waste management scheme to recover and recycle their packaging waste were exempt from eco contribution. Unless the same exemption will also apply on excise tax, the measure will impose an additional tax burden on law-abiding operators.

“The announced measure is also environmentally counter-productive because if the tax burden on products increases, contraband will be rendered more attractive,” he said.

Electricity represents 12% of overhead costs in a manufacturing company

The Chamber expressed its disappointment that the government did not lower energy tariffs for businesses, and that it ignored its proposals for research, technology, development and innovation (RTDI). Mr Borg said that while the Chamber is aware of Enemalta’s financial predicament, it nevertheless felt the need to advocate further reductions to protect Malta’s export competitiveness position, particularly in price-sensitive sectors such as manufacturing. He stressed that electricity represents around four per cent of turnover or 12 per cent of overhead costs in a manufacturing company.

“It is feared that further erosion of Malta’s limited cost advantages together with the high significance of energy in the production costs could lead to new foreign investors to ignore Malta as a possible investment location and push current investors to cheaper locations. It is not only new foreign direct investment opportunities that are at stake in the face of uncompetitive operating costs but also existing ones, given the fact that operating decisions are made in company headquarters on the basis of inter-regional cost comparisons.

“Decisions are made in favour of regions that yield the highest returns, and Malta must react to the current trend of declining wholesale electricity prices in the rest of the European Union. Due to increasing operating costs and relative declining competitiveness, new product lines are being lost by Malta-based plants to other more competitive regions. If product lines go elsewhere, investment goes elsewhere and the competitiveness of local factories risks going into a downward spiral.”

Mr Borg said that the Chamber made a number of concrete recommendations for the energy sector, such as changing night tariff to peak/off-peak system, bulking demand and direct purchases via the interconnector, incentives to further encourage energy efficiency and renewable sources, and other billing and non-tariff related measures.

With regard to RTDI investment, the Chamber had suggested that the government should invest in RTDI at this time of relative economic prosperity in order to safeguarding a competitive future. The Chamber’s proposals were aimed at making available the necessary RTDI infrastructure to provide Maltese business with a better chance of building and retaining a more resilient and competitive position.

Mr Borg said the Chamber has been actively promoting the establishment of an RTDI strategy for start-ups, which is fertile ground for success in innovative sectors of business with a promise for long-term business growth.

Joseph Farrugia, director-general of the MEA told The Sunday Times of Malta: “The transport issue is a complex one which merits serious discussion. What should be looked at is short-term measures to alleviate traffic congestion combined with longer-term solutions to address future requirements. Short-term solutions could result from better traffic management, incentives to use school transport, better use of sea transport, incentives for companies to introduce work transport and others.”

Mr Farrugia said the argument that fuel prices are to be kept high to discourage the increased use of cars and more traffic problems is questionable.

“Usage for leisure purposes might increase with lower fuel prices, but transport to work is a definite necessity which is there irrespective of the price. Perhaps the real concern is that if the price of private transport goes down compared to that of public transport, there will be an even lower take-up of public transport and the government will eventually have to fork out higher subsidies to keep public transport sustainable.”

Mr Farrugia said there needs to be more transparency regarding the distribution of benefits arising from cheaper fuel and energy, in the sense that first the extent of the savings need to be determined, and also whether such savings should go directly to the users (for example, lower price of petrol, energy rates) or utilised in a manner that promotes price stability and the diffusion of green energy.

“This discussion should focus on the balance that should be struck between imme­diate and direct benefits as against the dispersion of such savings over a longer period of time and spread over multiple stakeholders. Longer-term considerations will look into the feasibility of radical changes in our transport infrastructure, such as electric cars and a metro system, which of course requires the input of qualified experts,” he said.

Mr Farrugia also said that Malta has to deal with the pressures of rapid growth, such as labour shortages, environmental constraints and a stress on the infrastructure. He pointed out that there needs to be a greater awareness that the country’s resources are finite.

“This implies that once these resources are almost fully employed – as is currently the case of labour and land in Malta – we have to be very careful in choosing between alternatives available to ensure the highest value and societal welfare. For example, increased employment in the public service is a drain on a resource that could be more productively employed in the private sector.

“Increased economic activity can strain natural resources. A clear case is the impact on traffic brought about by the fact that most people can afford to have their own car. More than Budget measures, which are generally short term, there needs to be a cultural change in our way of thinking to acknowledge these constraints. For example, development should be focused in areas which are already built up.”

Mr Farrugia also expressed his disappointment that the MEA’s pre-Budget proposal for the setting up of a business clinic – which would support SMEs in difficulty – was not taken up by the government.