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Network News • 01-06-2023

Along with the sunshine

Author: George Mangion - Senior Partner at PKF Malta
Published on Malta Business Weekly: 1st June 2023

A Rose Garden is a song written by Joe South, best known as recorded by country music singer Lynn Anderson in 1971.

It goes like this…

I could sing you a tune and promise you the moon

But if that’s what it takes to hold you, I’d just as soon let you go

But there’s one thing I want you to know

You better look before you leap, still waters run deep

And there won’t always be someone there to pull you out

And you know what I’m talkin’ about….

Back on the sunshine rock ,we notice how restaurants and cafes are weathering a new storm before the start of the tourist season, as inflation and lack of trained workers leaves them understaffed and vulnerable to poaching. 

The sluggishness of the economy led locals to take heed of predictions by the Bank for International Settlements, a club of central banks. They warn that over 12% of firms in the rich world generate too little income to cover their interest payments. Many workers do not have big safety buffers either.

They risk losing their incomes and their jobs while still having to make mortgage repayments and buy essential .In this context, European Commission and International Monetary Fund have both advised Malta to wind down its energy subsidies and use that money to pay off debt instead.  Malta’s economic growth moderated in the first quarter of this year compared to the same period last year, according to gross domestic product (GDP) figures issued by the National Statistics Office.

The GDP for the first quarter this year amounted to €4.3 billion, according to provisional estimates.

The Central Bank last quarterly reports came to the rescue buttressing Castile’s performance. Annual growth in business activity in April rose further above its long-term average, estimated since January 2000.

The update also says that the European Commission’s confidence surveys show that economic sentiment in Malta rose in April when compared with a month earlier, and stood above its long-term average, which is estimated since November 2002. In month-on-month terms, sentiment increased across all sectors, bar in the services sector. More good news oozes under Prof. Scicluna direction as Central Bank governor.

This shows that in April, price expectations stood firmly above their year-ago level in the construction sector, and to a lower extent among services firms. In contrast, price expectations in industry, the retail sector, and among consumers stood significantly lower.

More confusing trends are heard from the European Commission’s Uncertainty Indicator for Malta. This increased instability when compared with March, though it was still lower than the April 2022 level. Uncertainty increased mostly in industry.

The statistics on labour market participation for older workers are nothing short of alarming. According to an OECD report, in 2021, only 64 per cent of those aged between 55 and 64 were in the labour force In Malta, only 53.5 per cent of this cohort of adults were gainfully employed.

Without significantly more selective immigration, improving fertility rates, working longer hours and longer working lives, and even more technological advances to improve productivity, most western economies will have a combination of lower labour output and a larger number of dependants.

With a scarcer labour supply, workers will increase their bargaining power and demand higher wages. Moreover, if AI improvements in productivity flourish, a smaller labour force will struggle with increasing demand from consumers wanting more goods and services. This is the perfect recipe for endemic high inflation.

The European tax agenda aims for a balanced revenue mix and a tax system guided by fairness, efficiency and simplicity. By achieving these objectives, a tax framework can promote equitable taxation, optimal resource allocation and streamlined compliance for businesses in Europe. What is in store for the hushed -up fiscal reform in Malta.

Bigwigs in grey caps meet in clandestine rooms to upgrade fiscal reforms. To start with, one expects them to improve fiscal incentives, as a fundamental contributor for Malta’s competitive advantage. Is Malta Enterprise board of directors sharpening their knives to start attracting serious businesses, investment and talent to the country.

However, given the evolving international context, it may not be the ideal for us to abolish the 6/7 th tax refund system. Such a bed rock has served the economy for over 20 years, and now change is inevitable. Malta’s corporate tax structure will be revamped while aiming to retain Malta’s competitive advantage.

Budget 2024 is expected to bring about the first moves in the tax reform, which is expected to be heavily influenced by the work of the EU, the OECD and the G20.


Author: George Mangion - Senior Partner at PKF Malta
Published on Malta Business Weekly: 1st June 2023
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