The Government’s plan to restore Malta’s fiscal health, put forward in the Budget 2022 on Monday, is “ambitious yet achievable,” according to prominent local economist and co-founder of Seed consultancy firm, JP Fabri.
‘Not the be all and end all of Government plans’
Speaking to BusinessNow.mt, Mr Fabri provided his in-depth expert insights on the Budget, which he describes as “not the be all and end all of Government plans,” instead stating that it will work in parallel with a number of other strategies launched in recent months.
These strategies, he pointed out, include the post-COVID recovery plan, an economic vision future-proofing Malta’s economy, the National Employment Policy, as well as the Resilience and Recovery Plan.
“The Budget is therefore there to steer the country’s economy in a future direction by nudging behaviour through incentives or taxes. It is also there to focus on challenges that the country is facing and ultimately to give a detailed picture of Government’s public finances,” he explained.
A ‘green nudge’
Addressing the environmentally-focused elements of the Budget, including but not limited to increased incentives for the purchase of electric vehicles and free public transport for residents, he explained it will “surely” give the economy a “green nudge.”
Aside from the aforementioned greener transport schemes, Mr Fabri points at construction reforms, aiming to shift the focus to renovation and restoration as providing this green nudge.
With regards to its more conventionally economic measures, he says the Budget also presented “various nudges to firms to continue to invest, such as the tax treatment of reinvested profits,” which is a “case in point”.
He adds that on an individual basis, the Budget supports individuals to participate more in the labour market and to also increase their skillsets.
Indeed, the labour market was a key focus of the Budget, and it included measures including a reduction in tax for part-time workers and an increased in-work benefit which will be paid to working parents who have children under the age of 23.
Economic niches & fostering investment
Mr Fabri also draws attention to the supporting of a general direction towards new economic niche sectors with their focus on the green and blue economy, as well as a focus on start-ups through the creation of a start-up residency permit.
With this permit the Government, in a bid to attract start-ups to Malta, will be offering a dedicated visa and will work with Community Malta to develop the programme and attract non-EU entrepreneurs.
Despite the scope of the Budget, which also includes the supporting of industrial investment through improving business infrastructures, some of the other strategies launched by the Government for public consultation, such as the Future-Proof focus more on the need to strengthen traditional sectors while diversifying into new sectors, says Mr Fabri.
Additionally, the Budget is complimented by the National Employment Policy, which presents a medium-term vision of how to truly support and transform the labour market, according to Mr Fabri.
He also identifies a number of challenges that persist, including regarding education, tax, and public financing.
“On a structural level, educational outcomes remain a key concern and challenge and I would have liked the Budget to start steering the country towards a rethink of its educational system and structure which is more future-proof and industry ready.”
Mr Fabri then turns to corporate tax, and, alluding to Malta’s recent agreement to a proposed international treaty requiring a minimum corporate tax rate of 15 per cent (international corporations in Malta currently benefit from an effective five per cent rate), says it remains a concern.
On this he adds: “I believe that Malta needs to have an open and mature discussion on revamping the system which will not only remain attractive for international companies but will stimulate Maltese led investment too.”
‘Ambitious yet achievable’
Another key element of the Budget was that it was “social at heart,” he says, explaining that the Government is using it to address issues, especially for vulnerable cohorts.
Malta’s public finances were severely damaged during the pandemic, with the country’s annual deficit spiralling to 11.1 per cent of GDP, and Mr Fabri insists that “restoring public finance sustainability is critical.”
“Although the deficit did increase significantly, it has supported the stabilisation of the economy post-COVID and the support was of a temporary, targeted, and timely nature.”
Debt, Mr Fabri says, “remains manageable when seen as a percentage of GDP,” and servicing this debt “is also favourable,” while the world economy remains a low-interest environment.
The restoration of fiscal health is also dependent on economic activity generated and although the recovery remains fragile, the domestic-focused economy will remain key, the economist suggests.
Here, Mr Fabri diverges from the view put forward by another seasoned economist Philip von Brockdorff, who emphasised the impact of international economic problems on Malta’s recovery – saying that “particularly because of an increase in energy prices and supply chain problems,” he expects Malta’s economy to grow by five, not six per cent in 2022.
Mr Fabri on the other hand, argues that “the mix of private and public investment together with an increase in domestic demand, supported by pent up savings should support economic momentum.”
“The target remains ambitious yet achievable,” he adds.
Looking to the future, Mr Fabri posits that the focus now needs to turn towards the implementation of the budget.
“This will truly translate these measures into tangible economic activity. The direction this Budget sets is clear, a more equal society, a resilient workforce, an enabled private sector and a greener economy,” he concludes.
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