GRTU director-general VINCE FARRUGIA gave the government a 7/10 for Budget 2010, which he claims took on board around 70% of his own recommendations. But don’t mention the words ‘price control’...
It’s been something of a roller-coaster year for Vince Farrugia, the outspoken director-general of the Small Businesses Chamber.
Starting off with a historic (though short-lived) unification of Malta’s social partners over the utility tariffs revision, 2009 paused for an intermission in June – in which Farrugia doubled up as a PN candidate for the European Parliament – before proceeding in August with a war of words between the GRTU and the Malta Resources Authority.
Now, in November, the year looks set to end on a small note of personal triumph for Vince Farrugia: a man who has dispensed reams of economic advice to successive administrations of government since the 1980s. Some 70% of his Chamber’s proposals appear to have been taken on board by the Finance Ministry in Budget 2010... and when we meet in the boardroom of our offices in San Gwann, Farrugia can scarcely contain his satisfaction at the outcome of a lengthy and laborious government consultation process that has been ongoing for over a year.
So at the risk of being a spoilsport, I start off with a question about his ill-fated candidature with PN last June. Isn’t it possible that his enthusiasm for the Budget today – or at least, some parts of it – may stem from his brief sortie with the Nationalist Party five months ago? And by the same token: is he at all concerned that his decision to contest the MEP elections may colour people’s interpretations of his subsequent public pronouncements?
“Not in the slightest,” he replies without any hesitation. “There are several doctors, lawyers and other professionals in Parliament today. Does their choice of a political career affect their professional work as doctors, lawyers, etc? No. It’s the same with me. I am an economist, and my stint as a political candidate has had no effect on my professional work. To be fair, I said so even at the time: I am not, was not and will not be a politician. If I made it in that election, I would have been 100% an MEP. But I didn’t make it, and as far as I am concerned it was only one chapter in my life, and it’s now closed.”
Farrugia also defends his choice of party, of which he has been critical (to put it mildly) in the past.
“The values of the Nationalist Party, and its experience vis-a-vis the European Union, made it a natural choice. Admittedly, AD was also consistent in its support for EU membership; but then, there was the issue of political strength...”
And rather than pigeonhole him as some kind of government apologist, Vince Farrugia argues that his electoral adventure has increased his personal clout in the national decision-making process.
“The only effect was to increase my standing within the ranks of government,” he says matter-of-factly. “It helped overcome an element of suspicion that existed within the PN, and now that this inhibition has been undermined I feel I have more influence, and this naturally benefits our members...”
However, Farrugia is keen to put the past behind him, and concentrate on the present – in particular the budget, which he informs me is “generally good, though there are sins of omission as well as sins of commission.”
Without going into the specifics, Farrugia outlines the gist of his Chamber’s recommendations to the Finance Ministry over countless meetings leading up to the Budget.
“We stressed the need for support to SMEs to help them resist the pressures of recession. In earlier budgets, the priority was to help importers. SMEs were left to face the challenges of the global economic crisis alone and on their own means. Malta’s SMEs made losses during this time, yes; but unlike other countries there were no significant redundancies. On the contrary, SMEs even took on more employees over this period. But,” – with enormous emphasis on the word ‘but’ – “manufacturing dropped considerably over the same period, in spite of all the assistance.”
So the emphasis on tax credits and micro-credit for small companies was a GRTU idea? Vince nods. “It was part of the package of proposals we presented to government.”
More praiseworthy to Farrugia’s mind was the newly launched scheme aimed at encouraging businesses to hire school-leavers who lack any discernable life skills.
“This is a project that is close to my heart,” he says with a touch of pride. “Too many youngsters are leaving school without any qualifications or job skills. Government correctly identified this problem. At a time when some businesses can’t afford to take on more workers, the scheme makes available money to hire and train these people. Everyone is a winner as a result...”
But for all his enthusiasm for individual measures, Vince Farrugia is also quick to point out the overarching fly in the ointment. Budget 2010, he remarks, was just not “imaginative enough”.
“What we feel is that government should have given more incentives to the construction industry. Malta has a strong class of developers, but very often they move on the whims of the market. There is no overriding policy guiding their efforts to the benefit of society as a whole...”
Vince rattles off a number of areas where construction work could be better honed to meet existing needs. “We need to develop the harbour area more. There is a shortage of quality back-office space on the market. And we need quality retirement homes...”
In all cases, Vince Farrugia argues it is a question of offering fiscal incentives to the private sector.
“In the case of retirement homes, we need to promote Malta as a retirement destination for Northern European retirees. Government is simply not realising the enormous investment potential of Malta in this regard... at present, there is no tangible demand only because there is no supply. If government gets the ball rolling, investment would follow suit.”
But isn’t there a limit to how much government should intervene, directly or indirectly, in the market? On this point, I put it to Vince Farrugia that he might be caught up in a contradiction. One the one hand, he praises government for its initiative to finance its own capital projects by setting up a private company dealing in property... while on the other he reacted furiously to the hint of ‘price control’ inherent in the same budget. Is this a case of different weights and measures? Vince waves the entire argument aside.
“Let me give you an example of the kind of ventures I mean, when I say government should ‘take the lead’. Government currently possesses a lot of property in various parts of Malta, either of its own or through the Joint Office. One of these involves prime land in Madliena, one of Malta’s most upmarket residential areas. Do you know what this land is currently used for? Medical stores. Can you imagine? Medical stores can be housed elsewhere, releasing this property which in turn can be used to generate revenue for capital projects.”
This, he continues, is a far cry from the sort of government intervention Farrugia has been so critical of in Budget 2010.
“At one point in the budget, there is a reference to ‘mandatory pricing’ with regard to medicines. Admittedly as a temporary measure, but nonetheless the wording is very clear for all to see.”
Farrugia is not amused, and makes it abundantly clear that neither he nor his Chamber are having any of it.
“The issue of medicine prices does have to be addressed, but not by returning to the old ways,” he begins, adding that when it comes to the price of pharmaceuticals – being an emotional topic with far-reaching social implications – Government found itself under increasing pressure from the general public and from the Opposition to ‘do something’ about it.
But government’s proposals, if implemented, would be a “throw-back to the past”.
“A few years back, government introduced a very costly registration system whereby importers of pharmaceuticals would register the medicines they import on a schedule,” he begins by way of explanation. “However, the cost of registration was prohibitive – sometimes as much as Lm20,000 for a single product. In practice, the result of this system was that importers would only stock those products which it could afford to register – i.e, the ones it imported in large enough quantities to mitigate the cost of registration. Therefore, there was an immediate shortage on the market of a number of medicines.”
This in turn means that the inflationary pressure was twofold: on the one hand the supply dropped drastically, and on the other, importers had no option but to pass on the extra cost of registration to the consumer. Government eventually had to intervene in order to address the shortage, and ended up registering the medicines itself through its health department.”
The good news from Budget 2010 is that government appears to have conceded that the previous system was an abject failure. The bad news, however, is that Tonio Fenech seems to have nothing left in his box of tricks other than a variation of the same failed system.
“We should have learnt from this experience. But if government re-introduces price-control, it would be clear that it has learnt nothing.”
Farrugia also warns that the GRTU will fight this measure tooth and nail. “Let make this very clear: the Chamber will not accept any government interference in the market. We will direct our members to withdraw supply of those products affected by price control measures until forced pricing is removed.”
Vince Farrugia’s proposal to counter skyrocketing prices – in medicines as well as other areas – is to tackle the root causes of inflation head on.
“There is no statistical evidence that traders are responsible for inflation at retail level. In fact, the issues that cause inflation have never even been studied. And yet, Malta’s regulatory bodies appear to be interested only in the retailers, and not the pressures that are really causing prices to go up.”
Not only that, but a few well-established causes of inflation have never been properly addressed, still less solved. Farrugia supplies a few basic examples: starting with the cost of distribution from the point of entry into the country to the retailer’s shelves.
“If regulators really want to protect consumers they would address the real issues causing inflation: such as the bottlenecks in distribution. We have been talking about the unacceptably high cost of distribution for the last 10 years, but nothing concrete has been done about it. The Freeport and harbour have been privatised, yes, but without any direct benefit to traders and users. The only outcome of this privatisation was the profits are now going to a private company instead of to the government. But the old practices have remained.”
Much the same, he adds, could be said for the Pitkalija. “Government publishes the prices of vegetables as they leave the Pitkalija, but what about the costs of getting the produce to the retailer – fuel costs, delivery charges, packaging costs, etc?”
Farrugia insists that retailers are not to blame for the current rate of inflation. “There are exceptions, of course. In business there will always some cowboy who wants to make a quick buck. But on the whole, it is unfair to blame retailers for putting up prices, when in fact they don’t have any choice.”
Instead of pointing fingers at shopkeepers and small businessmen, Farrugia blames this state of affairs squarely on Malta’s army of supposedly autonomous regulatory bodies, which he argues are “not doing their job properly.”
Farrugia is characteristically scathing about the work carried out by these Authorities – singling out the Office of Fair Trading as the most culpable of the lot.
“In Malta, regulators are fast asleep. Under political pressure – and instead of addressing the real issues – all they ever do is chase after retailers. To give an example of how things work in another EU country: in Spain, an inspector might visit an establishment once a year. In Malta, an inspector will visit your shop once every other week: first to check prices, then to check health and safety, then to see if there are enough fire escapes. They’re almost like cockroaches that come crawling out of the woodwork...”
Having said this, Farrugia is the first to admit that the system itself (i.e., of having autonomous regulatory bodies) is on the whole a good thing: “It’s basically a European model, and if implemented properly it should work. However, in this country we seem not to have realised yet that the basic minimum infrastructure for the implementation of European Directives has never been set up...”
Any comments?
If you wish your comments to be published in our Letters pages please click button below. Please write a contact number and a postal address where you may be contacted.
Search:
MALTATODAY
BUSINESSTODAY
Download MaltaToday Sunday issue front page in pdf file format
All the interviews from Reporter on MaltaToday's YouTube channel.
