PM demands answers from the opposition

Prime Minister Lawrence Gonzi insisted yesterday that the opposition should explain its policies on a number of issues which had a direct impact on the economy and competitiveness.

Speaking during a debate requested by the opposition on the state of the economy, Dr Gonzi said the opposition should say what position it had on the social pact. What was its position on direct and indirect taxation when, according to foreign surveys, taxation levels in Malta were among the lowest?

What was the opposition's position on the impact of international oil prices and ways to counter them?

What was the opposition's view on port reform and on reforms to make the education and health sectors sustainable? What was its position on pensions, on the environment and on the adoption of the euro?

What did the opposition think about reforms to direct services in the social sector more towards community aid rather than direct financing? What was the opposition's policy on the rent laws and requisitions, such as where properties were used as political party clubs?

Did the opposition agree about using early retirement schemes to reduce the size of the public service; did it agree that the wages policy should be updated to current needs and that those who registered for work should be obliged to follow full-time training or be struck off? What did it think should be done about the shortage of workers in the construction sector?

Dr Gonzi asked his questions at the end of a speech cut short after he suddenly found out he had much less time than he had thought.

Earlier in his address, Dr Gonzi observed that Opposition deputy leader Charles Mangion had said at the opening of the debate that the economy should not be a political football. He agreed with that statement, but that was not how the debate had developed, as the opposition painted everything negatively.

The government acknowledged that the economy was facing challenges, but it was also true that there were encouraging indicators.

The timing of this debate was also strange, coming right before the Budget, where the government explained its results and projections. It would have made more sense had this debate been held later, when one could analyse the outcome of the government's actions.

Dr Gonzi said the framework of the economy had changed radically over the years, particularly since 1987. Malta now had an open economy. It was not so dependent on manufacturing and now also had a financial services sector along with tourism. Trade had been liberalised and become more susceptible to what happened abroad.

The manufacturing sector itself had seen changes. For example, textiles were not as important as before. Should Malta continue to provide incentives for industrial niches that now had no future because of cheap labour competition abroad? Surely no one here wanted wages to be as low as China's? Malta was losing the same sort of industries as bigger European countries such as Germany, Italy and France.

It was true that Malta had experienced difficulties in maintaining its economic growth, particularly between 2000 and last year. The slowdown was evident throughout the world for well-known reasons, such as September 11, Sars and the Madrid train bombing. Malta last year had the added hurdles of the referendum and the general election, which caused uncertainty.

Furthermore, the competition for foreign investment had become more intense as former East European communist countries came on line.

The situation would have been much worse for Malta had it stayed out of the EU while those countries joined.

Dr Gonzi said the restructuring process by the private sector was in progress over the past few years. Statistics showed strong investment in industrial plant and machinery, meaning industry would be able to produce more with less people.

Restructuring was also strong in the public sector, where recruitment in the civil service was frozen and workers were redeployed as vacancies developed. Reforms were made at the dockyard, PBS, Malta Enterprise and Interprint, among others.

But restructuring had its consequences. The freeze on recruitment had had an impact on unemployment, in the same way as early retirement schemes. These were factors that had to be considered when one analysed the number seeking work and the labour force.

Measures to control the deficit, such as reducing government spending and collecting tax arrears (Lm10 million being collected in this way) had also had an impact on the economy.

Yet despite those consequences and the current scenario, one could see that the economy was moving forward and it was certainly not in the disastrous state the opposition was painting. Jobs were being created, the public service was getting smaller, investment was approaching the 2003 records and the deficit was narrowing.

But this did not mean that challenges did not exist, the biggest being that of achieving competitiveness.

Going over the opposition's motion point by point, Dr Gonzi said it was not true that unemployment had grown consistently this year and now reached over 8,000. True, there were problems in the first part of the year, owing to restructuring, but the number of people registering for work in part one of the register was now lower than in 1997 under Labour. The labour supply was 45,414, up 492, and the number of gainfully occupied, despite early retirement schemes, had also risen to over 137,000.

The number of private sector workers, including temporary workers, was up by 938 over 2003.

It was not true that direct productive investment had dried up. One could not ignore the factories which were investing millions to update their plant. In the first nine months of this year, foreign direct investment was Lm46.7 million compared to Lm6 million in the first half of last year. The number of new firms in the first half of this year was 1,950 compared to 1,486 in the first half of last year. New companies had increased by 21.5 per cent over the same period last year.

Investment in manufacturing was up 26 per cent in the first half this year compared to the same period last year.

So investment had hardly dried up.

The opposition claimed GDP declined in the second quarter of this year. That was true. But one should not make analysis on the basis of one quarter alone.

The opposition claimed the increase in VAT had had an impact on the people, forgetting the bonus given specifically for this purpose this year. And the opposition said nothing about how levies and prices for various products had fallen since May 1.

The opposition also did not admit that tourism had started a recovery.

True, the manufacturing sector and tourism were facing problems owing to a drop in competitiveness. It was for this reason that the MCESD was discussing ways to improve competitiveness.