Finance Minister Clyde Caruana says changes are needed if the country is to thrive. Interview by Bertrand Borg.

BB: We’re speaking just a few weeks after the MEP and local council elections, which Labour won but which left it shaking. The party lost more than 30,000 votes. What went wrong?

CC: Election results do not change overnight. There has to be a momentum that leads to something, and I think there were certain indicators indicating that the public mood was perhaps changing.

BB: Are you saying that you were not surprised by the 8,000-vote margin?

CC: I was expecting a result with a margin between 18,000 to 20,000 votes, based on a number of things: turnout for public activities and the surveys themselves.

BB: So 8,000 would still be considered a poor result compared to what you were expecting. How do you explain this sudden haemorrhaging of support?

CC: The thing that surprised me most was that I was thinking that turnout would be lower. Rather than staying home, people went out. They voted and expressed their opinion in a very clear way. I think that in itself is a message that speaks volumes.

BB: Polls, including ours, were off the target.

CC: My take is that there is what I refer to as the Trump effect. When Trump was running for his first election against Hillary Clinton, pollsters underestimated his support. And to be quite frank with you, I experienced something similar to this when there was the leadership race in 2019, 2020.

BB: You mean the Labour leadership race.

CC: Chris Fearne’s campaign was more robust, he had more endorsements, there was a feeling he was going to win. So people were shy to express their intention to vote for Robert Abela. There was sort of this fear. And I think that kind of element was also present this time round. It’s not that easy for someone to say that ‘I’m not going to vote Labour’, given that this government won by a 40,000 majority. This has to be taken seriously, because this element may also be present in the future.

BB: Are people frustrated with strains on the infrastructure and our rising population?

CC: Definitely, definitely. Once the result was out I reflected a little bit. The Mintoff Labour government of the 1970s brought about significant changes to the economy and the setup of the welfare state. And yet the 1981 election was lost in terms of the popular vote. The Fenech Adami government between 1987 and 1996 brought about a significant overhaul in terms of economic change. But nevertheless, people wanted to move from that kind of model to something new. People always vote for something better, for something that improves their standard of living. People’s behaviour is linked to the economic cycle, but also to the nature of the economy. People are often after something better, and perhaps something that improves their quality of life. They’re not just after money. Given that they are now more affluent, people are after a better quality of life.

BB: You used two examples, that of the Mintoff government and Fenech Adami government. In both cases, the incumbent government lost and the Opposition came to power. So if history is doomed to repeat itself, that doesn’t bode well for Labour.

CC: I’m going to be very, very clear about this. I think that the people spoke out in a very strong way. They expect a change in the way things are done. The Labour government is still in time to deliver that change. But people have made their voice very clear. Either government delivers the change ‒ and I still think that Labour can bring back those thousands of votes – but on the other hand, that has to be real change.

BB: So you think there is a chance Labour might lose the next election.

CC: As always. People vote or confirm a government on the basis of the government’s deliverables. So as always, every election is the government’s to lose.

People have made their voice very clear

BB: You’ve warned that our population will balloon to 800,000 by 2040 if we continue growing at our four per cent growth rate.

CC: Yes.

BB: That in itself is a sort of tacit admission that our GDP growth relies on the population growing.

CC: It’s not that the population is leading to economic growth. What’s happening is that the type of investment we have – and that we are attracting – is very labour-intensive. We have to change that. It’s easier said than done, because at the end of the day we have to go for something that is more capital-intensive, something that produces more value-added.

But we have to start, because otherwise if we keep repeating the same thing we will keep on attracting thousands of workers to the islands, and that is having its effects on the infrastructure. I said that we will be 800,000 people by 2040. If the current trends continue, we will already be at 600,000 by the end of this legislature [in 2027].

BB: You were probably the first frontline politician to talk about shifting our economic model. That was in 2021, we’re now in 2024. And it’s hard to see any changes happening, apart from lip service, strategies and committees.

CC: Let’s be very clear. This is not easy to do. It involves long discussions. All the social partners have to be on board, for the simple reason that changes will have implications on their members.

BB: You seem to be implying that social partners have been the stumbling block.

CC: No, I’m not saying they are a stumbling block, but as they say in Italian ‘tra il dire e il fare c’è in mezzo il mare’ [easier said than done]. If we’re going to change the superstructure of the economy, the way how our economy works, that is going to have a direct impact on the employers themselves. There are parts of industries that are perhaps not efficient and need to restructure.

BB: Can you give any examples?

CC: No, no, this applies in general. The essence is that we have to start doing more with less. Let me give you an example with the financial industry. For years, we were accustomed to attracting business that looked at Malta only from a tax point of view. Now that is over. We have to look at things which give us more value added, such as, for example, aircraft leasing, or family business. You need less people but the amount of work that they do generates more value-added.

BB: Construction still looms large.

CC: Yes.

BB: The fact that it pervades so many facets of our decision-making suggests a level of undue influence within politics.

CC: Yes. I reiterate what I’ve said in the past. Voters think it is time there is clear separation between the construction industry and political parties. At the end of the day, the construction industry is just another economic sector that shouldn’t be treated differently from manufacturing, the professional sector, finance.

BB: And you believe it is [being treated differently].

CC: That is why I am saying it should change.

BB: Do you raise this within cabinet and government?

CC: I always speak my mind.

BB: What’s the general perspective?

CC: I say what I have to say, then of course, it’s up to the rest to accept what I say or otherwise. But I always speak my mind.

BB: And the facts speak for themselves.

CC: I’m not trying to point fingers. But since I came into this office, I always promised myself that I will be always frank and to the point. And if I have to say something, I always try to do so.

BB: The employment strategy you presented in 2021 focused a lot on upskilling the workforce, on having a more educated workforce. It’s something you harp on about.

CC: Because that is how countries get more affluent now.

Let’s take the Netherlands. People on average work about 28 hours a week, yet their GDP per capita is more than double ours. Why? Because their workforce is much more skilled than ours.

BB: When I look at education statistics for Malta, whichever way you measure it – from early school leaving to literacy, maths, science – we’re mediocre.

CC: Yes, and it really pains me. We are one of the member states that allocate significant amount of money to education as a percentage of GDP, yet here we are in 2024 and 40% or so of 15-year-olds still fail to get six O Levels. That is something I can never accept. Economies are changing, technology is getting more sophisticated, and we cannot ignore the times we are living in.

BB: Do you feel let down by your colleagues in education?

CC: This also starts at home. Parents should encourage their children to read, or perhaps dedicate more time to follow what is happening at school. This is not just a task that should be borne by the state, there’s a responsibility within the family. I think this requires a national effort.

BB: Robert Abela said last week that the economy needs to move from one that’s focused on economic growth, to one focused on quality of life. But the reality is that we are a bit like an addict hooked on GDP growth, because if we don’t grow our economy at the 4% clip that we’ve been growing it, we’re in big fiscal trouble.

CC: There’s a big difference between economic growth and economic development. Economic growth has to happen. And there’s still room for our economy to continue to grow at 4%. What needs to change is how that 4% is created. And we have to start from somewhere. The country has come a long way but we need to triple the effort to move in that direction.

BB: The EU recently put Malta on its naughty step, if you want to call it that, because of our excessively large deficit.

CC: It was something predictable, you know.

BB: I was about to say, you knew it was going to happen. It was in your forecasts, you knew these new EU rules were going to come into play. So what is the government’s response going to be?

CC: I’m not worried at all. The excessive deficit procedure of 12 years ago was a guillotine. If you exceeded 3% [deficit], you had to cut immediately. Now, there’s more flexibility. In our case, the deficit has to go down by a minimum of 0.5% yearly. And if we want to do it on our own, without any interference from the Commission, we have to do that in four years. So I’m going to disappoint all those people who were perhaps in glee, saying this will bring down the Labour government or that there’s going to be tax increases or austerity. Nothing like that.

BB: So subsidies will remain until the unit price of electricity can come down?

CC: That is why we have to work hard to meet these targets, so we can justify them  when we are negotiating with the Commission.

BB: Are you confident that subsidies will remain?

CC: As long as I meet my targets.

BB: As long as the deficit can come down by 0.5 percentage points per year.

CC: Yes, and I’m very confident, as always, that I will meet my targets.

BB: But the moment something happens…

CC: It’s my job to make sure that moment does not happen.

BB: So you’re not concerned by one credit rating report after the other flagging this as an issue.

CC: Not at all. Even though credit rating agencies flag it, they still give us good ratings.

BB: Six weeks ago, your ministry sent out 270,000 cheques in the middle of an election campaign. Are those cheques a wise use of government money?

CC: It is a measure that enables us to give more to those who earn less. Income tax works the other way round ‒ the more you earn, the more you pay. This allows us to give more to those who need it most.

BB: Wouldn’t it make more sense to just raise the minimum wage then?

CC: No, because if you raise the minimum wage that will have a cascade effect on the rest.

BB: Was it your decision to send out the cheques during an election campaign?

CC: By and large, it always happens during this time of the year, March, April, May. It wouldn’t have made a difference. It didn’t make a difference.

BB: It might have backfired.

CC: I think that people have matured.

BB: At a Times of Malta event last year, you said Malta’s economy is by and large dominated by cartels. You said: “Banking, telephony, whatever – it’s cartels.”

CC: Because we’re a small market.

BB: But you speak matter of factly about something that is illegal. Cartels are illegal.

CC: Fine, but even if there’s the kind of tacit behaviour…

BB: Of course. I believe the only cartel that is official is OPEC, right? Every other cartel is a tacit one.

CC: It is a consequence of our small market.

BB: But we have a law – the Competition Act – which says cartels are illegal. We have a regulator [the MCCAA] to enforce that law. So an admission like that by the country’s finance minister suggests that the regulator is not really doing its job.

CC: There’s a fine line between what the regulator can do, what you can prove at law or in terms of numbers, and what you actually see. The fact that there are just a handful [of players] or one or two is going to restrict competition.

BB: There’s a difference between having a handful of players, and having a handful of players acting as a cartel.

CC: This goes back to the prisoner’s dilemma. If two companies are enjoying what we refer to as supernormal profits, why try and compete, and both end up worse off?

BB: Are you happy with the work that the MCCAA does?

CC: Why not? Yes.

BB: You’ve lost two parts of your portfolio in the past year: Malita Investments and employment. That suggests you’re falling out of favour.

CC: I’ve never tried to be popular. I’m 39 and I’ve been involved in the party for the past 25 years. Whenever I had to say something, I always did my best to say whatever I had to say. And I won’t change.

BB: Losing the employment portfolio – does that make it a bit more difficult to shift the economic model  as you believe it should?

CC: I’m saying what needs to be done, and I believe in that. At the end of the day, change cannot just come from one person. It has to be a collective effort of a government.

BB: There was a reshuffle early this year. There were rumours that you were asked to change portfolio.

CC: It wasn’t the case, no.

BB: Are you confident you’ll still be finance minister in a year’s time?

CC: That is up to the prime minister to decide.

BB: And will you run for deputy leader of your party, if the position opens up?

CC: No, I’m not interested. I’ve never been after titles or positions.

BB: If you weren’t interested in titles, you would not be finance minister.

CC: I get your point. You asked me whether I would like to go further up the scale within the party. No, I do not have any intention at all. Mind you, Chris Fearne is still deputy leader of the Labour Party.

BB: What if Brussels were to come calling?

CC: I’m not interested in that either. I think I still have a lot to offer over here.

BB: Do you rule out ever running to be prime minister of this country?

CC: The prime minister is Robert Abela.

BB: You never know in the future.

CC: A week is a long time in politics.