FOI's representations to the political parties on 2003 general elections

In preparation for the general elections being held next month, the council of the Malta Federation of Industry has approved a document outlining the FOI's ideas about industry's vision for the coming years. It puts EU membership as a top priority, while giving the next government an agenda for further economic restructuring.

Success in this regard is considered to be of immense help in industry's efforts to be competitive. The Federation's document gives a number of ideas how Government could help to boost industry's competitiveness and therefore help the economy to grow at a faster pace.

The executive summary of the FOI document, reproduced below, is intended for immediate consideration by the next government.

FOI president Anton Borg and a delegation from the FOI Council met a Malta Labour Party delegation led by leader Alfred Sant at the party's headquarters in Hamrun. Mr Borg presented a copy of the document at the meeting and gave an overview of the main points included in the FOI document. This was followed by a discussion on specific points of common interest.

Similarly, the Federation met an Alternattiva Demokratika delegation, led by chairperson Harry Vassallo, where the FOI document was presented and discussed. Accompanying the FOI president were director general Edwin Calleja, deputy president Adrian Bajada, and vice-presidents Joseph Pace, Ian Mizzi, Anthony Tabone and Martin Galea.

Executive summary

1. Preamble

In this document, the FOI has tried to convey the message that it looks to a future where the country is safely anchored as a member of the European Union. It has full confidence that this new beginning will provide support and comfort for the continued development of the economy and, particularly, of its industrial activity.

It acknowledges that the immediate period of adjustment will be a challenge for industry, as it will be for the whole economy. The main task for Government is to carry out the necessary reforms in public finance, with an emphasis on more accountability, a reduction of unnecessary expenditure and tax compliance to achieve a lower taxation regime.

The Federation believes that parallel to this challenge the country and industry have another important issue to face and that is to retain competitiveness. Industry's efforts will be boosted if the role of Government is re-shaped and re-dimensioned to achieve better efficiency and allow market forces to operate further.

Changes in this respect are bound to play a determining role in shaping the future economic performance of industry and the country. A number of courageous changes have been made but there are other pending decisions that need to be taken to make the country more efficient and to achieve the status of a higher value-added location based on a knowledge economy.

2. Malta's integration in the European Union

The FOI has based its stance in favour of EU membership on facts. Prospects are good both for investors in manufacturing and service enterprises and for the workers they employ. It therefore urges politicians to ensure that Malta does not miss the chance to join the EU with the next enlargement in 2004.

Alternative relationships with the EU do not give Malta any significant advantages. The Euro-Med free trade area, to come into effect by 2010, would only give market access to our industry in the Mediterranean countries six years from now. Malta will have minimal, if any, financial assistance from the EU because of its relatively high per capita GDP.

Therefore the FOI considers that industry in this country will be better served by operating under EU membership status because:

It will get immediate benefits as early as 2004 by way of trade access in terms of the bilateral trade agreements that have been signed by the EU with EFTA, EEA, Mediterranean countries and several others.

Economic and Monetary Union gives industry relevant direct advantages and it induces elements of economic stability because of the discipline imposed on Government in its management of the economy.

It is bound to attract more foreign direct investment to consider Malta as a location for a production base catering for European niche markets.

SMEs will be sure of continuing to benefit from technical and financial assistance and will have the opportunity to find partners in research and development activities.

Industry across countries adopt the same rules and do not take unfair advantages. The convergence is happening even with countries that are outsiders who are finding increased pressure to follow standards of products, on occupational health and safety, consumer protection, fair competition, environment and, increasingly, even in the social field.

3. Economic restructuring and its effects on industry's performance
3.1 Medium and long term planning of economic targets

The FOI strongly recommends that the next Government will take immediate steps to finalise a national development plan, tailormade to the needs of the country, setting clear targets and programmes to improve the overall efficiency of the country.

It also needs to take immediate steps to identify areas of avoidable expenditure, strengthen accountability and generally aim at reducing public expenditure to achieve the desired reduction in the public deficit.

3.2 Government involvement in the economy

The FOI urges the next government to ensure that the public sector assumes a modern role by drastically reducing its presence in the economy, especially where it is involved in activities of a commercial nature that could be done by the private sector more efficiently.

Government should move faster on privatisation and aim for more public-private partnerships under systems proven in other countries.

3.3 The national debt

The national debt level needs to be reduced. However, Government has assumed additional financial responsibility for guarantees and comfort letters issued to financial institutions and banks on behalf of state corporations and other institutions.

Appreciable amounts out of these will probably have to be added to the national debt figures. Measures are urgently needed to correct the situation in the interest of the health of the whole economy. To do this government needs to reduce expenditure commitments, rather than raise taxation.

3.4 Taxation levels

The FOI warns that high taxation levels will reduce the urge to invest and work, and is affecting competitiveness and the economic growth rate.

The situation needs to be corrected by a reduction in public expenditure (as mentioned previously) and improving tax compliance so that Government will be in a position to reduce taxation levels.

3.5 Social security reform

¤ The FOI highlights the problem of the welfare gap and urges the next government to consider the need for reform as a top priority;

¤ The government should channel receipts of contributions to a separate fund administered with employers' and unions' assistance;

¤ It should consider all necessary measures to ensure the social security system is sustainable in the long-term;

¤ It should aim at providing a 'safety-net'; and

¤ Encourage both employers and employees to invest in additional private health and pension schemes, by granting tax relief on premiums paid.

3.6 Public sector wages and labour market policy reform

The FOI advocates better policies by Government on public sector wage awards and its labour market policies. It asks the next government to review the situation so as not to cause imbalances in the economy.

A national productivity index should be a point of reference for public sector wage-fixing. Government should moreover take concrete steps to gradually reduce all the known over-staffing from public corporations and government departments.

3.7 E-government

The FOI urges the next government to continue with the commendable start given to e-government. Industry looks forward to increasing its efficiency as a result of an effective implementation.

The Federation urges government to provide the necessary human resources to operate efficiently the information technology system backing e-government.

At the same time it draws Government's attention to the need to diffuse the information technology culture among a wider spectrum of Malta's society if the country is to derive maximum benefit out of the high investment it is making in information technology.

4. Future challenges and prospects for industry in Malta
4.1. Competitiveness problems
4.1.1 Labour costs
The Federation has repeatedly made recommendations and it repeats these below for action by the next government:

¤ A national productivity index should be established by mutual consent with the trade unions and a national agreement should be reached on the way wage increases are to be negotiated and pegged within the national productivity increases registered each year with due regard being taken to sectoral productivity increases;

¤ The Federation does not agree with the cost-of-living increase that is awarded indiscriminately by law every year independently and in addition to the wage increases negotiated by collective agreement with the Unions. The cost-of-living increase should only be binding for workers that are paid at the minimum wage established each year by government;

¤ The training grants scheme under the Business Promotion Act, 2001 should be more realistic than at present and should cover the justified requirements of each firm;

¤ Government should exempt employers from income tax on the premiums they pay for private health/life insurance and pension schemes benefiting their employees; and

¤ Government should consider removing the provision that any public holiday falling on a Saturday or Sunday is to be compensated by an extra vacation day's leave from employment and industrial relations legislation.

4.1.2 Port reform
The Federation recommends as a matter of great priority action to reform the running of ports by:

¤ An overhaul and unification of the management system;

¤ The elimination of all restrictive practices in ports by the various stake-holders;

¤ Ensuring that the Office of Fair Competition applies the law on all stake-holders that operate at the ports; and

¤ Allocating to the Maritime Authority its one role of an independent regulator and not to allow it to manage the ports itself.

4.1.3 Factory space
The Federation asks the next government to take up the matter of availability of factories as a priority requiring urgent decisions after an assessment is made of the shortfall in supply.

4.1.4 Tax reform
The FOI recommends that:

¤ Personal income tax rates should be brought down to give more incentive for people to invest and work, and not rely on social benefits;

¤ Tax breaks should be tied to an encouragement for people to save for their own health/life/pension schemes;

¤ Fringe benefit rules should be less punitive in their application; and

¤ Government should ensure that VAT refunds are really paid within the time stipulated by law and that time-scales for refunding claims for industry should be reduced from five to two months.

4.1.5 Essential services
The FOI urges government to insist with the water and energy corporations for better service and quality, and more competitive charges for industry.

4.1.6 Assistance to industry
The Federation believes that current schemes run by the Malta Development Corporation under the Business Promotion Act, 2001, should be retained and expanded further.

The same applies for IPSE schemes and the assistance for exporting granted by METCO. Among the new measures advocated are:

¤ A tailored package under the Business Promotion Act that is specifically made for innovation activities, and research and development. These should include incentives for capital expenditure, technology transfer, industrial designs, process engineering, and development of new software.

¤ There should also be financial incentives, such as soft loans, bank guarantees, etc. Such incentives should assist existing industry to reposition itself in the higher value-added category, and to attract new ventures in the innovation fields.

¤ Assistance should be provided by METCO to manufacturers to source their raw materials and components.

¤ The activities of the Business Incubation Centre should continue to receive support and be promoted both locally and abroad.

¤ The Technology Venture Fund should be further expanded and promoted among existing industry, besides providing seed capital for new technological initiatives by SMEs.

4.2 Setting up of a national competitiveness council

The Federation urges Government to help set up the national competitiveness council on a sound basis and to support its proper functioning under the Malta Council for Economic and Social Development.

4.3 Human resources development

The FOI recommends the next government should:

¤ Introduce a monitoring process of progress and benchmarking techniques to make sure that the investment in education is giving good value for the money being spent;

¤ Provide career guidance officers who should have a good idea about the types of careers that will be available in the coming years. A system should be found for these education officials to liaise with the Employment and Training Corporation and the various sectors of the economy to be in a position to give the right kind of advice that could be crucial to students under their care;

¤ It is also important that the next government should not change the current education plans capriciously, but should improve on them with the consent of all stakeholders;

¤ The Malta College for Arts, Science and Technology (MCAST) should play a central role in the education system and should not be starved of resources if it is to carry out its functions satisfactorily and to enable graduates to achieve high standards commensurate with the challenges that industry will be facing in the coming years. Life-long learning efforts by MCAST should be stimulated by a strong marketing campaign where industry and the unions should be asked to help; and

¤ The Malta Professional and Vocational Qualifications Council should be given the necessary financial and human resources to enable it to start fulfilling its important role.