Malta’s Budget for 2011 was presented in Parliament on Monday as pouring rain pelted down with unprecedented fury. Yet we did not take to the streets protesting as they did in France and Britain, so only torrential rains wreaked havoc by flooding this small island. An undertaker is sure to make it to the Guinness Book of Records for having his store of unfinished coffins floating merrily away in the torrential storm waters. Certainly an omen of the post budget blues. But why complain when we look at how other Europeans have been protesting against budget reforms while we in Malta grin and bear our crosses.
There were no police in Palace Square using tear gas and water cannon against rampaging young people, as was the case in Lyon. In France, strikers continue to protest the pension reform plans of President Nicolas Sarkozy, a key part of his reforms designed to reduce public expenditure. As a result, these strikes brought about a shortage of oil and petrol around the country. The Interior Ministry said police had a tough time battling the worker blockade of three major fuel distribution depots. No strikes were planned by motorists against the latest hike in fuel prices announced this week.
True the French government stood fast in proposing budget reforms (long delayed) in Parliament on a Bill raising the retirement age to 62. The French government – not unlike us Maltese who are heavily in debt – says raising the minimum retirement age from 60 to 62 and overhauling the money-losing pension system are vital to ensure that future generations receive any pensions at all. Paradoxically, there has been no mention of pension reform in the 2011 Budget presented by the Minister of Finance, although it goes without saying that the national deficit does not account for the shortfall on pension funds. According to David Spiteri Gingell, the guy who has worn so many hats under this administration, the low fertility rate and higher life expectancy have turned the pensions issue into a veritable time bomb. Six years ago, his working group had proposed a three-pillar system: the first pillar, which is the two-thirds government pension with several proposed changes; the second pillar, where people will be obliged to put some savings into a private pension scheme; and an optional third pillar proposing tax incentives to encourage people to save in other pension schemes.
According to a National Statistics Office publication entitled “Malta in Figures 2010”, live births between 1958 and 2009 went down by almost 50 per cent, with more than 8,000 births in 1958 plummeting to the present figure of 4,143. This translates to a birth rate of 10 per 1,000 people, while the death rate last year was 7.8 per 1,000, with 3,221 deaths, bringing the population down by 1.5 per cent to 412,970 compare to 413,609 in 2008. But protesters need not worry nor take to the barricades since, according to the government, a team has started tackling the pension reform. Platitudes galore and the Prime Minister who said the government will be considering whether the time is ripe for some fine-tuning, particularly with regard to the introduction of the second pillar. His comments came last June at the end of an EU summit in Brussels, following a report by the European Commission which urged the government to introduce with “urgency” reforms in the pension and healthcare sectors to assure the long-term sustainability of Malta’s public finances.
The first phase – Pillar 1 – consisted of a staggered increase in the retirement age from 61 to 65 and in the regular contribution period to the state pension from 30 to 40 years. The reform included the introduction of a second pillar, which would see the setting up of private pension schemes with contributions by employees and employers over and above the national insurance contributions, which are still needed to sustain the basic pension as a guaranteed safety net. Pillar 3 would consist of voluntary contributions in an approved scheme. Regrettably, no mention on this issue has been made in the present budget. But then our protesters have gone quiet on pensions while bloggers complain about discrimination, saying that MPs, Presidents Emeritus and Presidents are privileged to the extent that some of them receive as much as three superior index linked pensions.
The children of a lesser God humbly accepted this state of affairs and did not protest against such a despotic system that favours our former, present and future lawmakers. It badly hurts when these same people are toying with the idea of forcing us to work up to the age of 65 while they enjoy better pensions. Moving on, and resistance is feebly encountered in the lamentations of The Malta Chamber of Commerce and Industry.
No fierce fighting here but only polite disappointment with the budget announcements made in terms of better regulation, which fail to address serious issues being encountered by the business community such as half-days, electronic IDs for corporate users and delays experienced at Mepa and the Law Courts. But reforms in Europe that have to do with the civil service have always been lenient. One of the sacred cows in most EU countries is the reining in of efficiency in the public service, usually bloated by extra staff at all levels. It is a bitter pill any politician who embarks on seriously modernising its public administration must take. No mention here in the budget concerning the redeployment of hundreds of staff except that only one out of two who retired will be replaced. One notable exception of the status quo seems to be Italy and Britain’s recent drive to weed out inefficiency and excessive bureaucracy.
The Italian crusade was spearheaded by Public Administration Minister Renato Brunetta. In one of his strict reforms, he claims that he reduced absenteeism by 40 per cent (an unheard of statistic in a country where joining the public administration is considered a cushy job for life). To the outrage of “titan” sized trade unions, he shook up Italy’s torpid civil service. Chancellor of the British Exchequer George Osborne gave details of the austerity drive aimed at reducing Britain’s public debt from a massive and ultimately unsustainable 11 per cent of gross domestic product to two per cent by 2015. Osborne said, “We are going to bring the years of ever rising borrowing to an end. We are going to ensure, like every solvent household in the country, that what we buy we can afford, that the bills we incur we have the income to meet, and that we do not saddle our children with the interest on the interest on the interest of the debts that we were not prepared, ourselves, to pay.” Britain is boldly moving ahead to clear its debt-ridden economy. It will raise taxes, cut numerous social benefits to millions, shed up to half a million public-sector jobs, cut budgets of government departments, and transfer the onus of creating new jobs to the private sector. It is meant to save €190 billion. His fortitude is also mirrored in Ireland where the government has taken the bold step to cut salaries and rein in public expenditure in an attempt to reduce burgeoning national deficits. Our minister of finance pledged to cut €50 million (in a budget of €2.9 billion) in the recurrent budget.
This sounds like a pittance when compared to the British government resolve to wield the largest cuts in public spending since World War II in a bid to bring its huge debt burden under control. The British model saw a five-year austerity programme that will cost the nation the loss of half a million public sector jobs, as well as reducing social benefits for many millions of Britons. But Malta has been spared all this. Party apologists tell us we do not need to swallow any medicine to cure our economic ills and help boost our competitiveness. On the positive side, there have been some attempts in the budget to stimulate SMEs and also to invest in more factory building. But some say that there has been no significant improvement in legislative burdens for small enterprises ever since promises of an “SME Test” were first made. Typically, the Malta Chamber notes that its members have complained vociferously about delays encountered in the evaluation of ERDF schemes. Similarly, it is unacceptable that last year’s announced budget measure to provide microcredits for SMEs has yet not been implemented.
At the same time, the Malta Chamber is perturbed by the announced increase of excise duty on fuel (3c/litre), which is bound to affect operating costs in various key sectors including tourism, manufacturing, transport and importation/distribution. But there were some brownie points earned in the budget, such as incentives including government allocation of funds for the implementation of the Malta Enterprise “Gateway to Export” programme aimed at assisting companies to export to foreign markets; the funding of a quality improvement programme entitling those who invest in the quality of their product or service to claim a tax deduction of 150 per cent of the relative amount, capped at €10,000; small businesses employing up to 10 people and creating new investment opportunities and jobs to continue to benefit from a 40 per cent tax credit, capped at €25,000. Not surprisingly, the ailing national airline AirMalta is due for a one time bailout to the tune of €100 million. Further good news that have kept protesters at bay is the building of a new Oncology Centre involving an investment of €14 million.
To conclude, perhaps the absence of protestors in the streets was not due to the inclement weather but more resulting from a nonchalant attitude that nothing is changing. Therefore, with no belt tightening and poisoned chalices, we can all agree to oui à la réforme!
by George M. Mangion
The writer is a partner in PKF Malta, an Audit and Business Advisory firm.