Pencil buildings, inflation and elections
In an interview by Times of Malta, home-grown business magnate Zaren Vassallo said he is now touting retirement. His words sound ominous.
Few will remember how, as the first mayor of Mosta, he had courted the party in government and was appointed to lead a successful consortium, Novita – composed of local contractors – to extend the Freeport infrastructure. In business circles, he is known for his chivalric smile and his smart way to befriend the PN’s ex-general party secretary even hosting him aboard his luxury yacht for the annual summer holidays. He is well known to have been a benefactor of the PN during their 25 years in power starting from 1987.
Now, dipping in his legacy as a leader in property development, care homes and hotels, Vassallo lamented the fact that the “uglification” of Malta has reached a point of no return during the past decade, especially with so many pencil buildings sprouting up in urban areas. He blames both developers and the planning authorities for it. In the interview, he said that the pandemic had caused a “mini-boom” in the property market as alternatives for a secure investment in Malta declined particularly owing to low interest earned paid by banks.
Vassallo believes this has led to an over-supply of residential apartments, elderly homes, offices and retail premises with half the boutique hotels in Valletta, apparently either having failed to open or are already up for sale. The rental market has slumped and demand for premium office space dropped, notwithstanding the launching of Quad, four towers offering a massive 44,000 square meter office development launched by Gasan/Portomaso group in Mriehel.
In a pessimistic mood, Vassallo warned investors about a saturation point reached in the care sector (he employs 1,200 workers in this sector). He recommended the setting up of a property bank where the state would rent empty properties at market value and offers them to the 3,500 social cases who have been waiting for decades to secure a decent abode.
One needs to heed Vassallo’s warnings in the background of a pandemic where Malta has borrowed heavily to maintain business support schemes and the annual surplus converted into a €1,300 million deficit last year. In an election year (bets are on in October/November date) the finance minister pledged not to increase taxes at the next budget even though he is seeing revenue dwindling and recurrent expenditure racing ahead of budget.
As can be expected, the worst-hit are the hotels and the retail and leisure sectors. Last year, the government started paying a monthly wage supplement (equivalent to €800 less 10% for FSS dues) to a host of workers enlisted in various annexes. Over past months, Minister Silvio Schembri duly reminded us that this translates to some 100,000 assisted jobs (practically one-half of non-state workers). In short, the government had to borrow to fund such benefits while corporate and vat tax revenue is down.
It is sad to recall that prior to December 2019, the country was managing a small annual surplus for the previous three years (code-named L-Aqwa Zmien) but the weather vane is now pointing to deficit territory. To bridge the gap, state bonds were issued to borrow an extra €2 billion to make up for the loss of revenue and tax deferrals. Naturally, members at MCESD are urging the government to initiate substantial measures aimed at stimulating the economy and team with Tech.mt led by CEO Dana Farrugia to support innovation.
Ideally, output from a recently appointed tourism think tank oozes with ideas on how to upgrade infrastructure and boldly diversify away from “bucket, beer and spade” tourism. Divers get an extra daily allowance to explore our “slime free” waters. In the past, the government prided itself on 2.8 million visitors (apart from 900k day-trippers on cruise liners) but the ecological cost was forgotten.
Vassallo warns that the island has reached a saturation point in some sectors which are on the cusp of giving up their idle workers. His warnings culminated in a sad reminder that we have reached a point in the uglification of the island where we cannot turn back and we cannot do anything about it. It is too late to solve it now. Others are less sanguine and look forward to a Renaissance this year (possibly a year of a general election) for the upturn in global business.
The Opposition has made various proposals on lowering corporate taxes and vat for SME’s, discounting water and electricity rates and reducing the cost of fuel. These were ignored. So, in a nutshell, to safeguard their livelihoods, low-income workers can either claim unemployment benefits or – as in the case of AirMalta’s cabin crew – accept a lower wage. It is opportune, to observe that the EU unveiled a historic, €750 billion recovery plan to get the members back on their feet.
Malta qualifies for a cool €1 billion tranche. Such debt will have to be repaid out of future GDP growth in the coming years. The logic of borrowing now to finance the retention of workers and other idle resources has to be weighed carefully against the probability of recouping such heavy costs in the future if and when trading resumes. Economists warn us against getting burdened with unsustainable debts which could lead to a situation whereby fresh loans would have to be sought to pay older ones (a mini Ponzi scheme).
In the case of Malta, such debt burden would after election force the exchequer to levy new taxes and possibly lower welfare benefits – a move which in itself is regressive but what goes up must come down.
Sadly, countries such as India, Brazil and Pakistan grapple with the possible fourth wave in the destructive forces of Covid-19, and this uncertainty is forcing international prices upwards. It will end up fanning inflation. However, closer to home, it is interesting to speculate that if infections prohibit mass meetings this fall, then why not install remote online voting, provided it involves no limitations of the right to voting secrecy nor serious and unmanageable cyber-risks.
Paradoxically, politicians are unlikely to be punished or rewarded for their failures or successes in managing the coronavirus pandemic at the next election.