Editorial: The commission’s sobering assessment

In the months leading up to the recent European Parliament election, the government continued to flaunt its economic successes, measured mainly by headline fiscal indicators like economic growth, budgetary deficit, and national debt.

The not-so-subtle message to the electorate was that the management of the economy was in safe hands and that the people never had it so good.

However, the European Commission (EC) interprets the evolvement of the economy differently.

It recently made a sobering assessment of the current economic weaknesses. It also delves into the threats that could result if these weaknesses are not addressed with determination.

To those who follow the local economic situation dispassionately, none of the warnings and recommendations of the EC come as a surprise.

Equally unsurprising is the government’s reaction to this document, which it interprets as a vote of confidence by the European Commission in the way the economy is being managed.

The EC raises several issues that are highlighted as priority action points that must be urgently addressed.

Like the IMF, the EC’s starkest recommendation is that the energy subsidy scheme should be reformed as early as the end of this year so that it will mainly focus on promoting energy saving and helping vulnerable families rather than encourage waste through indiscriminate subsidies.

Prime Minister Robert Abela and Finance Minister Clyde Caruana have persistently argued that they have no intention of winding down this subsidy scheme, whatever the EU says.  In its official reaction to the EC’s recommendation to revise the energy subsidies, the government chose not to comment.

The EC has now warned Malta and seven other EU member states over the excessive budget deficits and has recommended that the European Council open excessive deficit procedures for these member states in July.

One of the most fundamental economic strategies of the current administration is the promotion of aggressive tax planning legislation to attract direct foreign investment.

In its official reaction to the EC’s recommendation to revise the energy subsidies, the government chose not to comment

Despite partial changes to dismantle the image of Malta as a tax haven, the European Commission still urges the government to focus on aggressive tax planning risks, introduce a withholding tax on outbound payments or equivalent defensive measures and amend rules for non-domiciled companies.

As long as the government keeps ignoring the growing international aversion to tax avoidance, the risks of increasing pressures and sanctions aimed at countries like Malta that use tax avoidance as a strategic competitive advantage will continue to grow.

Reducing traffic congestion is an issue that all those living in Malta can relate to. The EC also argues that “reducing traffic congestion as well as high emissions from road transport is a key priority to address the challenge of sustainability”.  There are clearly no major attempts to reduce car ownership in Malta.

The state of the education system and the labour market strategies also raised the EC’s concerns, which urged the government to “strengthen the quality of labour market relevance of education and training to address low educational outcomes as well as severe shortage and mismatch of skills”.

In his reaction to the disappointing results for the Labour Party in the European Parliament election, Abela said he would listen to the message the people sent. He added that he is prepared to make unpopular decisions to do what is right for the country, even if it means losing popularity.

Abela will do well to start by reducing the millions in taxpayers’ money going for jobs-for-the-boys and vanity projects and reroute it to sectors of the economy and society in need.

The government would do well in at least acknowledging that the EC recommendations will benefit future prosperity in the long run.