Economy Is Not Overheating, But Infrastructure Needs To Grow In Line – Finance Minister

Sarah Micallef - 28th September 2017

"If you want to call it a boom in the sense of full employment, you may do so, however, a boom would be at the top of the cycle, waiting for it to fall – I don’t see it like that as yet.”

With Malta’s economy growing at an impressive rate – a staggering 6.4 per cent compared to eurozone average 2.2 per cent in the second quarter of 2017 – the question is, are we currently experiencing a boom, and how long can this last?

“In Malta, we have a situation where you have high growth and low unemployment, without the as-yet inflation in the labour market, and this, due to availability of labour,” said Finance Minister Edward Scicluna. “The inflow into the labour force from abroad is giving room for growth without causing an inflationary boom. If you want to call it a boom in the sense of full employment, you may do so, however, a boom would be at the top of the cycle, waiting for it to fall – I don’t see it like that as yet,” he continued.

As sectors like construction, tourism and financial services experience prominent growth, I asked whether it is time to contain the acceleration, or put further measures in place to continue encouraging growth. “I think it would be irresponsible to look at the growth per se and stop there. You should always be watchful for signs which would indicate a slowdown,” the Finance Minister said, explaining that while Government is keen to discuss issues relating to the labour market with businesses in order to address the issue and make it easier for them to recruit, it is also admitting that there are other issues, such as traffic congestion costs and shortage of office space, that need to be tackled.

And while Prof. Scicluna denies that the local economy is close to overheating, he believes that the infrastructure needs to grow in line with the economy. “It’s no use talking about traffic congestion unless you find ways of relieving it. There are a number of measures within the electoral programme that will be addressed in the Budget. Firstly you should monitor, secondly admit that there is an issue, and thirdly make your intentions to address it clear. These elements are there. Government is not in denial – we are admitting that when the economy grows at a high rate, it will incur extra costs. We intend to address them,” he said.

Linked to this, I asked whether he feels that Government should accelerate the pace of planned infrastructural projects – an area in which many perceive Malta to still be lagging behind. To this, Prof. Scicluna said that, more than accelerating, it’s a question of maintaining. “Maintenance is a hallmark of the best countries. Our infrastructure needs to be maintained, our roads need to be maintained – we need to reach that level of development at which roads and other areas of infrastructure are ritually maintained on a continuous basis, and not just when a pot hole appears. This is complicated because it’s not just about money – it’s about management and mentality… it’s complex, but it’s truly a reflection of one’s development.”

Reacting to reports that finding human resources to keep up with demand is becoming a serious problem in industries such as construction, the Finance Minister highlighted the importance of segmenting the labour force. “It’s ironic to have unemployed people in a segment for which we are using foreign labour. There’s an inconsistency there. In spite of the success of various measures like free childcare centres, tapering of benefits and so on, labour force participation is still low compared to other European countries, particularly among over 45-year-olds, so there is still room to entice these,” he said.

“Foreign labour is participating at all levels – definitely at the top end when it comes to the gaming and financial services sectors, but also at an unskilled level. How long has it been since you’ve seen a Maltese person cleaning the streets, for example? We know that a number of unemployed persons lack basic skills and qualifications, but are not ready to participate in the labour market at this level, often arguing that the pay isn’t enough. Our neighbours, meanwhile, are ready to accept the job at the going rate.”

Moving on to the sticky situation that was the Panama Papers, Prof. Scicluna believes that it was the dividedness of Government and the Opposition when it came to protecting the country from foreign competition and attacks which enabled the attack on Malta’s taxation system to hit us where it hurts, our competitiveness. “We are in compliance with the latest OECD Council recommendations, and co-operate with other member states in the EU to reduce tax avoidance – we are not interested in encouraging it. Many measures to this effect were even passed during our EU Council presidency,” he affirmed. Asked whether the scandal has affected the perception of Malta, he admitted that, “for a while, yes. Luckily, things are changing all the time, and it has very much quieted down.”

Looking ahead, I asked what is to be expected from this year’s Budget. “People want Government to look at things in the long-term, and talk more about quality of life rather than quantity of money. While money will always be an important medium, there are also public goods to consider – things like cleanliness, the environment, free space and less traffic congestion – this is where people expect Government to find solutions. While it would be unfair to expect this Government to wave a magic wand and fix all the issues, I believe that people do expect Government to start addressing them. If they see that we are doing our best, they will be pleased, and I hope that with this Budget, you can look at it and say, this is the Budget we expect for 2018.”

The full interview with Minister Edward Scicluna can be read in the latest edition of The Business Observer


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