FOI's reactions to Budget 2005

The Malta Federation of Industry has studied the Budget proposals carefully and considers that generally Government is giving the right signals towards conducting the necessary reforms to the economy. There are clear goals spelt out and an action list in the economic, social and public sector activities.

The stress on regaining lost ground on competitiveness echoes the calls made by the FOI in past years. It is noted that finally the Government is moving to help enterprise increase its productive hours by its move to eliminate the extra days of vacation leave previously granted to replace holidays falling in a weekend.

There is also the determination to conduct port reforms without further delay. The desperate situation is reflected in the economy's disappointing performance, with minimal or no growth being registered over the past four years. To industry this looks like a slow beginning to overdue reform.

Industry has been calling for action over the past several years. The country had fallen behind on its factory-building programme, and it seems that Government is still in the initial phases in its efforts to find private financing for this purpose.

Unfortunately, Government spent several years undecided on whether Malta's future economic development should depend on investment in manufacturing activity, thinking that services were a better proposition. These policies have obviously backfired badly.

But Government is not showing the right level of determination to encourage investment in manufacturing. E-government aimed at business and the tax incentives being offered to small firms, for innovation, research and development, and the general provisions for assistance to industry, are weak and will not give the required boost to investment that could make the difference in the expansion of the economy and the provision of new jobs.

Government's agenda for public sector reform tallies with what the FOI has been repeating for a number of years. There is now a promise by Government to move ahead with control of public expenditure, and privatisation of state-owned entities that were involved in commercial activities.

These entities were absorbing subsidies that were unjustified, especially when they were contributing to further deficits and increases in taxation.

The FOI welcomed Government's move to continue its efforts to combat evasion in social security benefits and the invalidity pension. This should yield further savings in public sector expenditure and help achieve control over public finances.

It was also a good move by Government to subject all unemployed people to training schemes in an effort to make them employable, and avoid as much as possible abuse by people working without a workbook. And, worse still, registering as unemployed and getting benefits without justification.

The situation the country is in, and the projected action, reflect the serious competitiveness problems the whole economy is facing and the urgent nature of the solutions. Additionally, the federation believes that the situation in public sector employment is still unacceptable, and that the proposed measures are certainly not sufficient.

The reduction of figures appearing in the statistical data on public sector employment reflect mostly the restructuring process conducted in the shipyards and Kalaxlokk and the transfer to the private sector of personnel engaged in landscaping of public areas.

These moves were commendable but more needs to be done to further reduce the burdens of unproductive labour in the public sector.

On the positive side the FOI notes the all-out effort by Government to install quality assurance in the education system and the investment for the future improvement of the education sector. The FOI reminds Government that Malta spends relatively the same percentage of GDP on education as other EU member states without achieving good results both in numbers and quality.

The FOI and Government have a standing arrangement for consultation with industry about the relevance of education to the business world, but the emphasis should now be to optimise the value for money spent in this regard.

The FOI finally appeals to the unions and Government for renewed and genuine efforts to negotiate and finalise a Social Pact in the national interest. All the social partners should be mature enough not to allow the discussion on the Social Pact to degenerate into a mere exchange of views without ultimately reaching agreement.

Only a consensus at national level on the measures needed can lead to further successes in attracting new foreign and local direct investment. Such an approach is the only way to enable the economy to expand on a sustainable basis and to create the needed level of jobs.