On 1 May 2004, Malta became a member of the European Union. Two years later, what has Malta gained from membership? In an interview, Prime Minister LAWRENCE GONZI tells David Kelleher what the government has achieved over the past 24 months and he insists that the right decisions have been taken, even if they were unpopular.

Two years ago today, Malta became an EU member. What has the experience been like?

It has been a learning experience… a positive experience for the country. We have made good use of the money made available to us in the first rolling period up to 2006. We are using these funds in the priority areas that were identified for Malta such as the infrastructure, the environment, social policy, and helping the unemployed. The first results are now starting to appear.

It has been a positive experience, because Malta has become a more attractive place for investment. Over the past few months, we have attracted foreign investment into Malta in those areas where we believe Malta has to grow. Membership has made the country more attractive to investors and given us an added element of competitiveness. Investments such as SmartCity, the HSBC call centre and the various pharmaceutical companies that have opened, prove that Malta in on the right track.

We have also achieved results on the economic front. Growth last year was 2.5 per cent, which is one of the highest in the EU. And this happened because our policies have given us the results we required. Of course, we had to face the challenges of EU membership. The opening up of the market created a different scenario. We experienced particular pressures on agriculture. However, we are making full use of EU mechanisms to help the sector.

In 2003, the PN promised an “economic boom” after membership. Two years after joining, few are seeing the promised benefits. Has your government taken the people for a ride?

EU membership has brought about a new economic reality. However, to achieve an economic boom we needed to go through a very aggressive restructuring exercise. Nobody can question this government’s determination to restructure the country. Over the past 24 months we have aggressively addressed those public sector areas that required surgery. Of course, it has hurt sometimes. It was painful for the hundreds of people who went through this exercise at the Malta Drydocks, the hundreds of employees at Gozo Channel, PBS and Sea Malta.

Each one of these entities used to absorb millions of liri in subsidies and support financing which the country could not afford. Over the past two years, we have addressed these issues. One area, port reforms, still needs to be addressed.

I think that this is the government since independence that has really addressed the need for restructuring to prepare Malta for the future. We have brought our finances in line with a convergence plan that we published a couple of years ago. And we are very proud of the fact that the targets are being hit. Now we are in a position – now that the financial position and economic activity are showing healthy signs – to try to start translating all this into initiatives that can be positively felt by the public.

I must qualify that. I disagree with people who say they have not seen or felt any positive changes since membership. If we look at the infrastructure, at the roads we have built, at the projects in villages, in towns, to upgrade public areas and all the contracts that we have in the pipeline, we have already generated a certain improvement in the quality of life.

We are unfortunate because in the meantime we have had to face the crisis created by the price of oil – a problem facing Malta and other countries. We have to address that by sharing the burden and I believe that we have done the best we could for the burden to be shared in a fair manner without endangering people’s jobs and the economic growth of the country.

Granted. But when are we going to see something more tangible, that positively affects the people’s pockets, like tax reforms?

We have already announced that a group of experts are studying the taxation system with the intention of revising it to stimulate more economic activity. Of course, in so doing we must not endanger the sustainability of the public finances that we have achieved with a lot of sacrifices. We have to find the right balance between having a financial status that is sustainable in the long term and having a tax system that offers incentives for new economic growth.

This expert group was set up at the beginning of this year and the target is that they will give their recommendations by the end of this month. The government will then consider the experts’ recommendations and hopefully be in a position to give an indication of what it is going to do in the pre-budget document that should be published some time in June or July.

Will it be an adjustment of taxation or fiscal registration or the airport tax? We will decide on those priority areas that have to be identified. I am conscious of the fact that people are looking at the departure tax as a starting point.

Will the departure tax be removed completely?

Not necessarily, because that would mean the government giving up between Lm4m to Lm6m in revenue. We can take that decision but we could also decide to give up something else that would give us more economic benefits. We could decide to go back to the level of taxation on airport tax that existed during 1996, 1997. There are a variety of options. What I can say is that we intend to look at airport tax as one of the taxes that has to be revised. The extent of the revision? We will decide when we have the final picture set out in front of us.

In a press conference after the local council elections, I had asked you if your government was standing on a pedestal, and only stepped down during election time, to win votes. You had reacted quite strongly to this remark but the fact remains that people feel the government is too distant. Does the government have a communication problem?

In the past two years, this government has carried out unprecedented public consultation meetings with the public. There has never been this level of concentrated discussion on such a wide variety of topics - pensions, the use of EU funds, and so on. I myself have had open sessions with the public.

We have been a very open government throughout, giving the public the opportunity to listen to us and to criticise us. I think I can say that during the past 24 months our contact with the public has been at the highest level ever.

Is this enough? Probably not, and the worst thing we could do is to say that we have informed everyone on what we are doing.

I think the government’s communication strategy can improve and we can explain to people a lot more about what the government is doing and the results it has achieved. Funnily enough, our achievements are appreciated by foreigners more than the Maltese themselves.

For instance, the EU Commission tells us that we are on the right track. What better certificate can a country get? Credit agencies and the IMF, for instance, are saying we are moving in the right direction. These positive opinions are constantly expressed by the international community. And yet you find Maltese politicians and so-called experts who contradict all this.

The international community does not have a hidden agenda. And I set my mind at ease when an international organisation comments rather than when an opposition politician, who has an agenda, wants to denigrate what the government is doing.

The problem is that there is a lot of exposure for those who want to denigrate Malta locally than to those who think that Malta is on the right track.

Do you think that the government has moved too fast on a macroeconomic level, while at a micro level the economy simply can’t catch up? This is particularly evident in education and job creation. Employability is becoming a problem.

I think you have hit the nail on the head. The country is achieving excellent macro economic results. Translating them into the micro is the challenge that we are now facing. We cannot translate into micro without the macro benefits. There is no way – unless you want to present a false picture – you can talk about the micro without the macro. We did the logical thing – although sometimes unpopular - and started from the macro.

But again, I am proud of the fact that the government had the courage to take some unpopular decisions in order to get the macro right. Now that we are really on the right track, we can start thinking about the micro.

Having said that, the micro does not only mean by how much my wages are going to increase at the end of the month. It includes the quality of life, the environment, the care of our heritage and history but it is also investment in education, in new primary and secondary schools of the highest quality, investment in a university that needs to go through another phase of change. We are transforming an economy today for the future and the results are there for all to see. We are achieving our targets.

The vision that we have is happening today and we will continue to work towards achieving that vision. We are getting there and with the funds we will be receiving from the EU, we will be able to make a lot of progress.

How has the government managed to govern effectively without the full support of the social partners and a social pact?

First of all, we tried our best to achieve a social pact. We bent ourselves backwards to achieve the social pact. Everyone agreed and it was just the General Workers’ Union that remained adamant on one final point - that wage revisions are linked to economic growth. Unfortunately, the GWU disagreed.

What did we do as a government?

We implemented the social pact and all the points that were made public. What we could implement as a government, we did. Although there was no agreement on the issue of public holidays we passed the law.

I would have preferred to do that with all the social partners on board. The GWU were not on board… but we had to support of the others. The GWU protested and took to the streets. We still went ahead.

Was it a waste of time? Look at economic growth last year… 2.5 per cent. If anybody thinks that after years of difficulty to get that level of growth, it just happened by coincidence, then I challenge them. That rate of growth did not happen by coincidence.

Over the past 24 months we took the decisions that had to be taken. Are we satisfied with this level of growth? No. But for heaven’s sake, in today’s economic environment and with an economy like ours, to achieve 2.5 per cent growth is a very good achievement.

And this happened because we took decisions, even if they were unpopular. The people have a democratic choice. They can either have a government that is popular and takes the wrong decisions; or a government that is unpopular but makes the right choices.

We believe that membership of the EU has given us a golden opportunity that we can only benefit from if we restructure. And this is what we are doing.

Two major reforms remain: ports and pensions.

The tourist industry and low-cost airlines are two hot issues at the moment? When will the government take a decision?

We have decided. We launched three schemes, one that can be used by low-cost airlines. If they are so interested in Malta they have a golden opportunity to do so. These are schemes that cater for growth in the winter months when we need more and more tourists. I am not prepared to subsidise airlines in the summer months when we have high numbers of tourists. Definitely, we have the potential to increase numbers in the winter months.

The schemes are open to all carriers and not just low-cost airlines. It is up to them to take them up.

Are you happy with the government’s work?

As a politician you must always move the goalposts by making more ambitious targets. I want to achieve more and more quickly. There are areas where we have to remove bureaucracy and become more efficient; remove government-induced costs; change the mentality and culture.

A lot of this has been done already and we are starting to reap the benefits of the government’s hard work.

We have always registered success by taking the right decisions and time has proven us right time and again. History will show that we took the best decisions for the country.

What has membership meant for you personally?

I think that it has made me so proud of this island. We are the smallest member state of the European Union and I have lived for two years something we used to say would happen with membership.

Contrary to what many critics said, including Opposition Leader Alfred Sant, that we would be “eaten up” by the larger countries, Malta has earned respect. Our voice is heard, we contribute to the discussion and we criticise when necessary.

I think I have become even more proud to be Maltese. I had the honour to meet the US President and to be greeted by him as a member of the European Union. This makes you proud, proud to be Maltese and proud of the people. The Maltese people are incredible and they can perform and succeed whenever they are given the opportunity to do so.