In a cautiously worded statement, the Malta Employers Association (MEA) reacted to the 2021 Budget announced on Monday by highlighting the unique environment in which it was prepared and the fundamental challenges it needs to address.

It welcomed the “sprinkling of benefits and fiscal incentives” and the “carefully designed and targeted measures” while pointing to several areas which merit concern, chief among them the spike in COVID cases and the Moneyval evaluation.

The MEA acknowledged the Minister of Finance’s expression of gratitude to the business community for their resilience in retaining their employees to keep unemployment amongst the lowest in the EU, noting the effect the fiscal packages announced during 2020 had in sustaining the economy. The extension of the wage supplement to March 2021 was also welcomed as this “will certainly be influential in keeping unemployment relatively low in the coming months”.

However, it also expressed regret at the “strategic decisions” taken during the summer months that saw a sharp increase in COVID cases. This rise in cases, that so far shows no sign of abating, will continue to keep the tourism sector at a standstill. “The higher the numbers of cases and the longer the duration of the pandemic, the less likely tourism will recover.”

The MEA countered accusations levelled at Government that this is a “voucher Budget”, pointing out that “vouchers are targeted interventions that have been effective in helping the catering sector, and the re-issuing of these vouchers is positive. However this measure, costing €30m, has to be seen against a backdrop of a national budget that exceeds €4bn.”

The Association also welcomed the “sprinkling of benefits and fiscal incentives targeting various sectors of society”, with the increase in pensions and the VAT exempt thresholds being “particularly effective”. The MEA predicts such measures will stimulate domestic demand.

The increase in optional leave was not received as well, with the MEA calling it “a frivolous measure [which] will unnecessarily erode our national competitiveness”.

The problems faced by the tourism industry will only continue to grow the longer the pandemic continues, with the MEA also questioning whether the construction industry can keep up its momentum in the coming year.

This may be offset by local demand, with the Association noting an increase in bank deposits as “many people have increased their precautionary reserves due to the prevailing uncertainty”. The MEA continued, “Many investment projects have also been placed on the back burner, as businesses expect recovery to take more than twelve months. This has a plus side since there is a pent up demand which may push the economy towards pre-COVID growth, but it will depend on the speed at which the country emerges from the pandemic, and also through a determined effort to repair any reputational damage which Malta has suffered over the past years.”

The outcome of Moneyval is therefore another critical factor which will determine the rate of recovery and of the financial services sector in 2021 and beyond. “This assessment is creating uncertainty in many economic sectors, and there should be an effort to safeguard Malta’s reputation. Government will also have to address the issue of the correspondent banking in the coming months.”

The MEA continued by praising the Government for utilising its fiscal manoeuvrability, due to surplus budgets in previous years and a fall in the Debt-GDP ratio, “and, as expected 2020 and 2021 will incur substantial fiscal deficits which will increase the debt ratio to close to 60%.”

The Employers’ Association concluded: “Overall the budget focuses on the immediate concerns due to the COVID pandemic through a set of carefully designed and targeted measures, but needs to be supplemented with a longer term vision for the country through identifying new economic sectors that offer economic potential.”