6 - 12 September 2001

Of policies and solutions

The Malta Labour Party’s economic policy document has been the subject of much discussion. The party’s spokesman on economic affairs Leo Brincat talks to David Kelleher about the party’s policy document and how the MLP views the current economic climate

Mr Brincat, recent press reports have claimed that you will not be contesting the next general elections. Is there any truth in these reports?
These are totally unfounded. In my case, I have been campaign-
ing for the past months and have started again after a short break. It is not something I have considered or contemplated.

The Labour party is currently re-examining its policy. Why has the party felt the need to do so and which parts of the policy have been extensively changed or amended?
This is basically the same kind of process we carried out in 1995. In that year we had updated our policy in all sectors. This year, it has been a more exhaustive and comprehensive update. Last year we defined the party’s policy on social affairs and earlier this year that on economic and financial policy. The whole process has developed stead-ily in 2001 and we have had meetings with either the constituted bodies, individuals or technical experts on a fortnightly basis.
The document we are currently discussing is still a draft. This has been examined at two levels. First it went to the parliamentary group which made a number of amendments, followed by the national executive. The latter proposed a total of 150 amendments. Two weeks ago we started another process – that of consulting the party’s various organs and committees. This is expected to be completed by the end of this month.
Afterwards the national executive will get together to consider or appraise the proposed amendments. Where possible, these will be taken on board. We feel that the party’s delegates must have a say in how the document is drafted because, after all, they will have to approve it when the party’s goes to the General Conference which should be held in October. A date, however, has not yet been fixed.
We have looked at existing party policy and legislation in various countries, not only in Europe but also in the US, for example with regards to anti-trust legislation.
We are proposing a position on privatisation. In the past, this would be limited to 40 per cent stock. We feel that although this should be retained in the first phase when natural monopolies are involved, in other cases we would be more flexible and possibly allow for greater participation. We feel that there is also wider scope for strategic alliances and that all discussions should be held with, not one, but a number of partners. We also believe that there should be an effective regulatory function and in all cases involving privatisation, the possibility of bringing on board local investors should be carefully considered.
The Malta Labour Party also believes that some parastatal companies stand to benefit more from a strategic management alliance rather than equity
participation.
With regards to financial
services we would prefer a consensus approach on a number of issues. Take for example, collective investment schemes. The withholding tax has to be reviewed. We are not saying that it must be changed but this is an agenda issue that will have to be discussed. Subsidies is another important issue. The party believes that these cannot be phased out completely, especially in certain areas like the Drydocks. This would not be feasible, so we are proposing that these subsidies will be scaled down.
The draft document we have prepared also suggests that education must be given greater importance. In fact, in all chapters there is a reference to training and education. They must go hand-in-hand.
A number of people have said the draft document does not go into specifics. This is true, but the policy document is more of a set of guidelines rather than a party manifesto. This does not mean, however, that we do not make specific commitments.
On the contrary, we make a number of important statements. The party firmly believes that competitiveness should become a national priority without affecting deregulation. Greater attention should be given to the role of the private
sector, Private Public Partnerships. Manufacturing, for example, should be innovation-driven rather than cost-driven so that new niches can be targeted.
From an economic and financial point of view, we feel that we must be more diligent when tackling taxation and the government must pay greater attention to cutting down on public expenditure. The increase in expenditure has been criticised by the constituted bodies and by the IMF. We commit ourselves not to introduce taxation between budgets and the optimum situation would be one in which revenues increases as a result of economic growth and not taxation.
The IMF report is favourable on a number of counts, however it criticises the fact that the government does not rule out further taxation. We feel that more taxes will only weaken incentives for investment and stimulate tax evasion.
In the draft document we also state that the Tax Compliance Unit should form part of the Inland Revenue Department and not act as an autonomous entity, accountable to no one except the Minister of Finance. All resources to tackle tax evasion should be channelled through the Inland Revenue.

The IMF report states that the government has managed to meet its international commitments on a macro level. How-ever, the government is finding it difficult to strike a balance between reducing the deficit and cutting down on public expenditure. What solution are you proposing?
If you look at countries in the EU and beyond, they have managed to curtail public expenditure. Unless this problem is tackled properly, the country will remain stuck in a rut. At the same time, the last two budgets were insensitive not only towards the consumer but also towards the business community in general. We now find ourselves in a solution where everyone has a cash-flow problem. It is a deep-rooted issue. Even the usually cautious Chamber of Commerce has spoken out quite strongly. The feedback they have received paints a picture that is totally different from that originating from statistics. One cannot be insensitive to public opinion. When public sentiment is so widespread, every government must pay attention to these sentiments. One cannot base decisions solely on statistics.

You emphasise a lot on taxation. Why?
There is one major anomaly in this country. On paper, taxation is supposed to be socially just but we doubt whether this is really the case. The Malta Labour Party will be looking closely at the structure of income tax to see if it is achieving its aims. We have an over-taxed society yet tax evasion is also rampant. Something is wrong.

VAT is another difficult issue. What is the MLP’s position?
With regards to VAT, the Malta Labour Party has stated its position very clearly and reports that there is a split among members is certainly not the case. The three decision making bodies are the leadership, the executive and the general national conference.
The first two are bound by what the document is proposing and I can say that when this issue was discussed in the parliamentary group there was unanimous consent. Not one member abstained.
What we are saying is that we would continue monitoring the performance of VAT. One cannot take a decision today because of changes that the government is expected to introduce to conform to EU legislation.
It would not be correct to say ‘let’s wait till we are in government and then we will decide’.
We are not going to be dishonest and wait till we are in government. We are firm in our commitment. We have to crystallise our position before the elections take place. If we go or rather when we go to the polls, we will state our position. At this moment in time, we are keeping all options open.
A decision will be announced in the run-up to the election and not on the eve. A lot of people are expecting, including the media, that a decision will be taken at the October conference. This is not the case. If the policy document remains the same, we will continue monitoring pending any change and effect on the consumer and business.
A decision will be taken in the national interest and not in a strict party interest.

There have been calls for inc-
reases in public sector salaries and a new collective agreement. Are these claims justified considering the state of government finances?
The government has brought the problem upon itself. Top officials in the public service have been granted increases and added benefits. It is therefore understandable that the unions want the same for their members at lower levels. This is a consequence of bad government policy.

Is the Malta Labour Party against the proposed benchmarking exercise in the public sector?
You cannot be against anything that enhances productivity. What does not really make sense is that after a lot of platitudes we are nearing the end of the financial year and nothing has begun. We are in September and preparing for the next budget. Mr Dalli said a couple of months ago that the process was moving ahead at a fast pace but nothing has happened to date. What does the government have to show?
In the public sector, the necessary reforms have either not taken place or else they have not given the necessary results. There is a need for a culture change in the service and this will not happen overnight.