Companies that operate in sectors that are low on productivity but require a lot of workers should pay a higher tax rate or more in permit fees, Clyde Caruana believes.
The Finance Minister believes that measure would encourage the growth of high-value-added businesses, helping the country shift its economic model as it seeks to mitigate infrastructural strains caused by an unprecedented population boom.
Caruana made it clear that the idea is his and has not been endorsed or adopted by the Abela-led government he forms part of.
But the suggestion adds flesh to Caruana's long-repeated calls for Malta to veer away from focusing on labour-intensive, low-value sectors in favour of higher value-added ones.
The minister believes recalibrating economic incentives would also help higher-value sectors – such as gaming or financial services – grow, as those sectors are currently suffering the externalities caused by high labour-intensive sectors.
An EY survey held last year found that 86% of foreign investors in Malta believe the country is not equipped to handle population growth.
“The entire economy would collapse without TCNs [third country nationals],” Caruana acknowledged on Thursday.
“We need foreign workers. The issue is, how many?”
He then raised an idea that, he emphasised, was his alone.
Companies that operate in sectors that are low on productivity but require many workers should either pay a higher tax rate, pay higher fees for work permits or be made to pay an extra fee to obtain permits, he said.
Such companies come with high externalities which must then be shouldered by national infrastructure and other industries while contributing relatively little to the economy.
The minister was speaking at a Times of Malta event, in an interview with editor-in-chief Herman Grech.
Malta’s population has increased by more than 25% over the past 10 years, in large part due to a government push to fuel economic activity. GDP growth has consistently outpaced the EU average over that timeframe.
But while the population has boomed, investment in infrastructure has not kept up. Citizens regularly cite traffic, power cuts and other infrastructure-related issues among their top concerns in surveys.
Caruana previously led state jobs agency JobsPlus and was, at the time, a leading proponent of Malta’s strategy of opening the doors to low-skilled foreign labour.
Speaking on Thursday, he said he has no regrets about that stance.
“I used to say the country needed more foreign workers. And I stand by what I said back then," he said.
But the minister said he has also spent years quietly warning about Malta being ill-prepared for the continued influx of workers.
“I’ve been warning about the need to change [model] for years,” he said, noting when pressed that his warnings predated Robert Abela’s time in government and stretched back to the Joseph Muscat-led administration.