FOI seeking lower costs for manufacturing industry

The Federation of Industry has asked the government to take measures in the forthcoming budget to reduce industry's costs, saying it was concerned about the loss of competitiveness in the manufacturing sector.

The FOI's proposals urge the government to find a way of reducing the increase in labour costs from year to year to maintain competitiveness and productivity, which in 2001 decreased by 8.4 per cent per capita.

The federation warned that there might be a further decline in manufacturing productivity this year.

FOI president Joe Zammit Tabona said wages and salaries were of particular concern. As a percentage of total manufacturing added value, they had increased by nearly Lm30 million since 1995.

This represented an increase of four per cent per annum but value added from productivity was not increasing at the same rate. This was leading to loss of competitiveness.

In the prevailing difficult international situation one needed to compete better to maintain the same market share, he said.

Mr Zammit Tabona said recommendations presented to Finance Minister John Dalli followed a survey among industries which concentrated on manufacturing.

The recommendations supported the FOI's view that the sector needed government action to reverse trends and to enhance competitiveness.

"The FOI believes that action by the government to change policies and to bring about increased efficiency and a change in procedures and practices of major departments and public corporations needs to be taken now if the contribution of the manufacturing sector to the GDP is to be maintained in the coming years," he said.

Mr Zammit Tabona said domestic exports decreased in 2001 and were expected to fall further this year; manufacturing employment in relation to gainfully occupied has been constant since 1995 at 21.2 per cent; manufacturing contribution to GDP stood at 22.8 per cent; wages and salaries increased by 4.2 per cent.

There was low foreign direct investment in manufacturing and high costs of production. Labour costs in the sector had increased between four and five per cent annually and the same trend could continue; sick leave (an average of 70 hours per head annually) accounted for 3.2 per cent of the total labour cost and vacation leave and public holidays for 13.8 per cent of the total labour cost.

The FOI is recommending that government only grant the cost of living adjustment to employees on minimum wage instead of automatically granting it to everyone; maintain training grants at the maximum of 48 weeks as in previous years; and consider a reduction to one day of the current three days 'window' prior to issuing National Insurance sickness benefit.

The federation is also calling on the government to take steps to reduce the number of public holidays, which cause additional manufacturing cost; to give incentives for new job creation in manufacturing through a cash grant for a period of two years or exemption for companies from payment of social security contributions for three years; and a tax exemption for employees on premiums paid by employers for private health/life insurance and private pension.

Another recommendation is for the Inland Revenue Department to become more accountable. It said the Commissioner of Inland Revenue should issue more statements of practice and guidelines to taxpayers about departmental decisions on self-assessments and should also be subject to penalties, such as in the case of wrong assessments.

The FOI is also recommending tax deductions on investments in private pension schemes.

The federation maintains that a reduction in personal income tax rates would generate a certain level of economic activity and ideally tax breaks should be linked with an encouragement for people to save more.

Fringe benefit rules had mainly resulted in additional financial burdens for employers and therefore a review of the rules is suggested.

The FOI is recommending the creation of an incentive package specifically tailored to encourage research and development activities. Such incentives should assist the government's aim to have a repositioning of Maltese industry in an attempt to attract higher value-added activities.

The FOI also dwelt on the situation with regard to local freight and the port handling, saying that these account for about three per cent of total manufacturing added value, mainly due to the high cost of handling and clearance of goods arriving via sea freight.

The cost to release a container was "high and unjustified" - to ship a 40 foot container to Malta from Italy costs Lm334, from the UK Lm408, while the charge to release it from port was a disproportionate Lm221, the FOI argued.

On VAT refunds, the FOI is proposing that these are paid on time, in line with the law, and that claims for export-oriented companies be reduced from five to two months.

The FOI said that VAT refunds were actually being received by cheque after an average delay of between 23 to 25 days from the date they were legally due.