Four in five Malta-based SMEs feel that Malta is moving in the wrong direction. Only 54 per cent of foreign companies in Malta feel the country is attractive – the second worst result in 11 years. Leading business lobbies are dropping the formalities as they talk of “collapse”.

And yet, the Maltese economy remains the fastest growing in the European Union, with many businesses citing a lack of adequate labour as a top concern as the country remains at practically full employment.

For Finance Minister Clyde Caruana, the sentiments reported by businesses and the economic data are at odds, describing them as a “paradox”.

“If the economic, business and investment climate in Malta are not that good, how can one explain that there is still such strong demand for labour?” he asks, sharing his “feeling of a disconnect” between survey findings and the realities on the ground.

Simply put: “The numbers tell a different story.”

The Minister points out that the main engine of Malta’s economic growth over the last year was in fact internal consumption, a sign of the Maltese population’s feelings of economic security. “The overall macroeconomic picture is that this country is expected to continue growing at a rate of about four to 4.5 per cent.”

“It’s an employees’ market”

During a sit-down interview with WhosWho.mt, Minister Caruana concedes that employers are feeling the pinch of the shortage in the quantity and quality of labour and makes it clear that there is no easy fix.

“It is an employees’ market. If businesses want to hire or retain their existing employees, they need to keep on increasing their pay packets,” he says.

Will the tax cuts announced in his Budget speech, delivered on Monday, help employers by easing demands for increased pay, since employees will already have more money in their pockets?

“No, I don’t think so,” replies the Minister. “The tax cut – the major feature of this Budget – won’t solve these issues for employers, and given that demand for labour is as strong as ever, I think the wage bills will keep increasing for the foreseeable future.”

“I’d beg to differ”

One of the most pervasive critiques of the Budget was that it “lacks the necessary measures and economic vision to drive a major quality leap and a tangible improvement in the well-being of society” – words written by The Malta Chamber that capture the sentiments of many other stakeholders and commentators.

Asked for his reaction, the Finance Minister replies: “I’d beg to differ,” pointing to the three specific policies mentioned in his Budget speech, regarding transport, labour migration, and Malta’s economic vision for 2050.

These three policies, being prepared by Transport Minister Chris Bonett, Employment Minister Byron Camilleri and Economy Minister Silvio Schembri, respectively, will all be launched in the coming months, and will build on the “very important message” delivered by the Finance Minister in the introduction and conclusion of his Budget presentation.

“Some 2,500 of the 15,000 words in my speech were meant to give a clear signal in terms of direction,” he says.

“We have had, perhaps, a model which was well suited to spread the economic growth that we have witnessed throughout the past 12 years or so. Now it is time for us to make another leap in terms of development, and that development can only come by if we change the way we do things.”

He continues: “Government is realising that things need to change. People are yearning for that change in the way we do business in this country, in the way we earn our living, and I hope that in the coming months this Government will be in a position to bring about that change.”

“Retirement age was, is and will remain 65”

Turning to what has turned out to be the most contentious part of the Budget – the increase in the number of full years of social security contributions required to qualify for a full pension – Minister Caruana argues that the change “does not mean that people will have to work longer.”

“Let me be clear. The retirement age was, is and will remain 65 years.”

Nonetheless, anyone who joins the labour market later than the norm, or who drops out of the labour market before rejoining it, will likely not be eligible for a full pension upon retirement. However, they would still “get something close to it,” says the Minister, noting that the system to calculate just how much that is has not changed.

This is not the first time the number of years of full social security contributions has increased – in 2006, it increased to 40 years, and it was only increased to 41 in 2016.

“A blessing in disguise”

Malta has committed to the introduction of a global minimum tax rate, agreed to by the OECD and the EU, although it has deferred its implementation for some years until the kinks in the agreement are worked out.

Once famously adamant that tax rates are a national competence and an essential part of the economic competitiveness offered by small island states, Malta’s endorsement of the plan represented a major shift in its strategic policy.

Coming shortly after its greylisting as a financial jurisdiction, during a period where Malta made international headlines for all the wrong reasons, does the Finance Minister feel that the missteps made weakened the Government’s hand in its negotiations with foreign counterparts?

“I would say that perhaps, at times, certain things that sound very negative when they happen can also be seen as a blessing in disguise.”

Minister Caruana argues that the actions Malta was forced to take reformed the country for the better: “Whereas before we were everything to everyone, now we are being more selective. We have to make sure that all our affairs are in order, so that our jurisdiction improves its reputation to continue attracting good and clean business.”

A prime example is the financial services sector, which he says is moving away from simply providing services to companies to benefit from Malta’s tax regime, and into new areas of expertise with an even higher value added, like family offices and aircraft leasing.

He stresses that the Government’s initiatives in the sector only serve to support the “bold” action plan designed and written by the industry itself, driven by the Malta Financial Services Advisory Council.

Tax collection reform “long overdue”

To close the interview, Minister Caruana is asked about the development he is most excited to see over the next years.

In a reply that can perhaps only be given by a finance minister, Mr Caruana identifies the reforms to tax collection effected under his watch.

“There has been a lot of change when it comes to Government revenue, in terms of making sure that we collect what we have to collect,” he says. “The investment that is taking place within the Malta Tax and Customs Administration is quite significant, the results we’re seeing are very impressive, and I think that this is something that has been long coming.”

The Minister notes that the country’s adequate tax base makes it possible for Government not to increase any tax rates, nor to introduce new taxation – as long as everyone pays their fair share.