Compensation for budget measures counters spirit of the budget

by Karl Schembri

The Federation of Industry does not agree with the unions in asking for compensation from the government vis-a-vis the budget measures.

Addressing the FOI annual conference, "Malta's Economy: Realities and Opportunities" yesterday, the President of the federation, Joe Caruana Curran, said compensation for budget measures would counter the very spirit of the budget. He said it would be another one of the policies of "showering people with money to keep them quiet".

"I regret to say that the federation and the unions will have to agree to differ over the issue of compensation from government for the budget measures," Mr Caruana Curran said.

"This will only be undoing what needs to be done. Creating a continuation of the cycle. It simply has to stop somewhere - and before that happens, we may all have to tighten our belts," he added echoing Dom Mintoff's historical slogan.

Delivering his last speech as FOI President, Mr Caruana Curran said the country has to settle the bill for the iniquitous costs in the public sector, including public sector employment, social transfers, subsidies to corporations and public debt servicing. "Government, you just cannot continue with the tactic of buying industrial peace by going on a spending spree," he said.

Reflecting back on the past economic goals, Mr Caruana Curran said the economy was flying high up to 1995. Those were the days of intensive government investment in infrastructure. "But then it all fell apart and we began our slide down the slippery economy slope. The problem was private investment was not there in sufficient volume to help apply the brakes."

Now Malta needs a miracle. Mr Caruana implored "the god of privatisation", reiterating his unshakeable belief in privatisation and liberalisation of the market. "We in business should not plead for government to pump even more finances into the economy. Government must distance itself from the economy."

Corporations should be privatised immediately while politicians should agree on a clear direction for the country.

His appeal to politicians was indeed quite clear: "With government working remorselessly towards EU membership and the Opposition Labour Party just as remorselessly militating against it, it is not exactly encouraging entrepreneurs to take new investment decisions."

Mr Caruana Curran said the FOI was in favour of EU membership because it would create an economic partnership, but the country still has to learn the lesson of overcoming "the political resistance to sound economic plans and rigorous impact assessments".

He appealed to government and opposition to look at EU membership in a professional manner and go beyond their rhetoric of "unsubstantiated 'yeas' or 'nays'."

That was just what the leader of the opposition promised to do at the beginning of the speech, only to end up with the usual conclusion that EU membership is not beneficial for Malta.

Dr Sant admitted that "we need access to a much wider market than Malta has ever been or will be." Malta has to open its internal market to those who require such an opening to happen, if they are to open theirs to Maltese producers. But access to other markets is not enough, the MLP leader said. The country needs to recognise its operating parameters to ensure that output in goods and services remains competitive.

The market forces remain however the imperative for the Maltese economy. "Any rules we adopt, any rules we change, must ensure that the power and usefulness of the market is not fudged or contradicted. The time is well past when the State could be relied on to provide some total anchorage for jobs and prosp- erity, growth and welfare."

The State should remain a focal point in development but its role must that of a central unit providing guidance and coordination. "It cannot itself serve as a motor for the creation of economic wealth.

"That had best be left to private operators, working under the discipline of the market."

Returning to the EU membership issue, Dr Sant said it was correct to say that Malta would join a big guaranteed market thus gaining access to the international market, but the terms upon which such access would be achieved do not "allow us to benefit from it".

"Would we remain flexible? Could we continue to operate in terms that satisfy our own particular conditions? My answer to these questions is no - but please carry out your own investigations on the subject," Dr Sant told the industrialists.

The prime minister's premises for his argument were identical to Dr Sant's. Predictably, his conclusion was the opposite.

"Membership of the EU will provide a framework within which the Maltese economy can maximise the opportunities inherent in globalisation," Dr Fenech Adami said. "This is because the acquis communautaire represents a corpus of best practices in the political, social and economic sphere."

Membership will also send a powerful and positive signal to prospective investors, Dr Fenech Adami said. It will place Malta in a category of investment locations that benefit from political and economic stability, a familiar legal system, harmonised standards and a labour force that is attuned to the demands of the modern workplace.

"Non-membership would deny us many of these advantages," he said.

There are, of course, problems which the economy is facing. Although economic growth remains relatively high, the trend rate of growth in GDP has slowed to between three and four per cent in real terms, the Prime Minister said. Moreover, gross capital formation for the economy as a whole, taken as a proportion of GDP, has declined marginally over the past three years, while inflation at around two per cent is still higher than inflation abroad. The fiscal deficit is still unacceptably high, threatening Malta's competitiveness.

Government's privatisation programme, outlined in the White Paper published in November, "will help re-define the role of the State", Dr Fenech Adami said.

The government has to deliver certain public services, which include law and order, health and education; it must ensure that society supports those of its members who are in need. At the same time government is committed to deregulating markets, allowing prices to be determined to a greater extent by the market mechanism.

"This implies removing protective levies and controls on capital movements and interest rates," Dr Fenech Adami said. "It also means ensuring that monopolistic practices are curbed, even within the public sector, and that fair trade and competition are promoted... The expected gains from privatisation will not materialise unless the privatised entities operate in a competitive environment."