Michael Falzon | Sunday, 31 January 2010

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Subsidising the end of subsidies

If all goes well,” the Prime Minister must be musing, “by the time the country goes to the polls, it would have solved two problems that had been troubling Malta for decades: the drydocks and the public bus service.” At a cost, of course. The latest moves on the two fronts seem to indicate that government has managed to buy its way to the full resolution of the two sore thumbs.
The drydocks issue was partially closed when all the employees were given a golden handshake and lost their job, even though some were subsequently employed on a casual basis so that the enterprise could finish the contracts that it was committed to carry out.
In the meantime, the drydocks was split into some four bits that were offered for ‘sale’ to private enterprise as non-ongoing business units without any obligation to employ anyone in particular.
The drydocks had been hanging like an albatross round the country’s neck for far too many decades. The amount of taxpayers’ money that has been pumped uselessly to subsidise the drydocks would have given a much greater return for the country had it been given away as tax cuts or channelled into education, to give an example. Who is responsible for so many losses over so many years is, by now, irrelevant.
It is no business of the state to try and avoid losing money repairing or building ships and the sooner the state got rid of the enterprise the better for us all – including drydocks employees, even though they might have short-sightedly thought otherwise.
The subsidies that have been flowing from the country’s coffers to the drydocks over the years only served to make up for the business losses incurred by the enterprise in which the profit motive was completely non-existent. This in spite of a number of reforms, most of which in practice remained on paper. Of course the culture of the workers – their way of doing things – was never reformed.
The amount spent by government – after much pleading by the GWU – on this exercise will probably not be balanced by the proceeds that the government will make from the drydocks privatisation exercise. A report in MaltaToday last Sunday indicated that the sale of the ship-repairing unit will net government less than €6 million, only slightly more than 10% of the cost to government of that golden handshake given to the former employees. The official reaction to this story did not indicate that there was something wrong with the reported sum.
Of course, one must consider the prospective income from the sale of the other bits and pieces, including the only profitable sector in the former drydocks set-up: the unit servicing and maintaining yachts at Manoel Island. But there is no doubt that the income from the exercise will fall quite short of the expenses paid since the beginning of the privatisation process.
The PN will probably argue – with some justification – that the long term is more important than the short term as a privately owned ship-repairing venture employing a small number of people will be a positive economic activity that contributes some money – even if it is not a lot – in the nation’s coffers via taxation and National Insurance contributions, instead of draining these same coffers.
The truth is that in this case the taxpayer has had to pay through his nose in order to put an end to the reliance of the drydocks on public money.


The public transport problem is the result of all that is wrong with monopolies – one that, to boot, was designed according to the exigencies of the service provider rather than to those of whoever is paying for the service viz., the passengers and the taxpaying public.
Like anyone who believes he or she has a ‘safe and permanent’ monopoly, Maltese bus owners believed they could run the show on their own terms. They never felt the danger of extinction through competition and they thought they could always bully the government by threatening to bring the country to a standstill.
Over the last twenty years or so, the cost of the average bus fare as well as the subsidies to bus owners have risen considerably but passengers have gained practically nothing for this rise, most of which – admittedly – had to cover rising costs, particularly that of fuel and wages. Meanwhile the state foolishly bought new buses at taxpayers’ expense and handed them over to the bus-owners for a pittance. The bus owners had also managed to wrench from the state a system of subsidies originally intended to cover routes that are not self-sustaining but that are necessary from a social point of view.
The time for a ‘revolution’ in the system had long been felt. The government has designed what it thinks is the ‘perfect’ transport system for the island – a system that could hardly be operated by the hotchpotch of bus owners and drivers that were represented by an ‘association’ that was neither a company nor a trade union, whatever they thought and however they acted.
To be able to contract out the new bus transport system, government had to agree not only to buy the existing buses – including those bought with a hefty government subsidy – at a price that leads one to believe that government is buying back the licences that it had originally issued for free! It also had to commit itself to giving a 10-year guaranteed job to the drivers for which they will be paid a minimum of €9,486 a year.
The subsidisation of the end of subsidies in this case is so blatantly expensive that the Chamber of Commerce, Enterprise and Industry reacted with ‘utter disbelief’ urging government to use its funds more judiciously.
In this case, however, the pertinent question is whether this is really the end of subsidy regime for the bus transport system. The new system includes highly profitable routes, less profitable routes and even less making routes. Will the new contractor – to be chosen from among those who bid for the contract – be happy to make up for the loss of some routes with the profit from other routes, or will he expect a subsidy for the loss-making routes? If government starts accepting subsidising particular routes, it will again start sliding the slippery slope, even if this time it is dealing with one contractor rather than with hotchpotch of owner-drivers. This also impinges on the question of the new bus fare tariffs, something that could undermine the public’s perception of the reform if they are considered to be ‘too high’, whatever that means.
In any case, the country will be getting a public transport system designed according to the exigencies of the public rather than for the ‘convenience’ of the bus-owners. But this could still affect the country’s deficit negatively, and the Prime Minister would not have much to crow about on this aspect of the deal


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