The man in the street regularly watches announcements on state TV about a healthy and resilient economy boasting full employment, ushering a swift recovery in the tourist industry, now firing on all cylinders, all dancing to the tune of low unemployment levels. It sounds all hunky dory as other European states continue to register high unemployment, and Germany, the biggest economy of the EU, is slowing down.

However, in Malta, the sound bite from the plebs praise pennies from Heaven when rain cheques are donated by the state to all voters camouflaged as tax refunds. Following a robust economic growth of 6.9% in 2022 (compared with 2021, itself a lacklustre performance due to the pandemic), the government is projecting GDP to slow to 4.1% and 4.2% in real terms in 2023 and 2024, respectively. Against this backdrop of superlative economic growth, the debt-to-GDP ratio is expected to amount to 52.8%, increasing to 55.3% next year, as the government decided to maintain its unprecedented energy support measures. In fact, the deficit for 2023 is expected to amount to 5% of GDP.

Those at the European Central Bank and at the European Commission who focus solely on their tunnel vision of a relative debt ceiling of 60% of GDP as set by the Maastricht Treaty, did not bat an eye when presented with our national fiscal budgets for approval. If Brussels is quiescent on our debt levels, then we may ask why is discussion on the relative increase in the poverty level (real or perceived) not on our top agenda? Ideally, we sit down and take a more holistic approach to the incidence of poverty. We were showered with positive signs of an economy, which the prime minister sung for us at the start of summer, auguring serenity for all. Surely, the repetitive power cuts and a freak storm in April has opened the floodgates for complaints, a shock reminder of climate change.

Another topic, which gathers attention, is care for the environment. This is included under the new ESG rules - companies now need to beef up their balance sheets in order to be ranked compliant once ESG rules (environment, social and governance) become mandatory. Banks are reluctant to be seen monitoring ESG hallmarks that will be launched on many, including medium-sized companies as can be mandated next year by ISSA 5000. This regime will serve as a comprehensive, stand-alone standard suitable for limited and reasonable sustainability assurance engagements. It will apply to sustainability information reported across any sustainability topic and prepared under multiple frameworks.

Another topic in the budget armoury, is inflation. The rate for 2023 is anticipated at 5.7%, after which it is expected to level at 3.7%, so long as the massive government subsidy remains in force. On a positive note, unemployment is set to remain low, projected at 2.7%, which is a marvellous statistic compared to higher percentages registered by larger countries. As was the case in the past, the 2024 Budget will see some 250,000 workers receive cheques worth between €60 and €1,500. These will be mailed in two batches, in December and May next year.

The EY Malta Attractiveness Survey found that a staggering 86% said they consider Malta's preparedness for future population growth to be inadequate, with only 6% saying they thought the country is up to the task. Despite these concerns, the country's attractiveness to foreign investors remains largely unchanged since last year, hovering at 59% - an increase of just one percentage point from last year.

Apparatchiks lording Castille, are enjoying the ride. Shift News discovers how they do not miss any opportunity to place nieces in top jobs as advisers, persons of trust on six-figure salaries, not excluding family acquaintances - all secure on the gravy train. The latest novelty is how an ex-prime minister was paid €11,000 monthly for giving consultancy to a loss-making company selling exotic birds - parrots and toucans now camouflage dubious consultancies with their colourful feathers.

Good news follows - as Malta will apply the derogation with respect to the EU Minimum Tax Directive such that it will not apply the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) for up to six years. This imposes a flat tax of 15% on profits of multinationals having a group turnover of €750m or higher. A Qualified Domestic Minimum Top-up Tax (QDMTT) is not expected to be introduced at this stage. The current corporate taxation system, known as the full imputation system, will stay, whereby corporate profits are taxed at the rate of 35%, but which refunds up to 30% can be claimed. This gives a sigh of relief to tax practitioners who were kept in the dark by the ministry and MIA, IFSP, Finance Malta whether the Two Pillar system will start biting next year.

Another headache not solved in the budget, is the massive leakage of early school-leavers, about 17%, who gain no formal education and naturally, still expect to earn a decent wage (not easy today when digitisation and AI is de rigueur). A consultancy firm, employed by a direct order by MCESD, has finished its study on minimum wage which the social partners collectively approved lead by a government-appointed chairman. Consensus was reached and paraded in a triumphal TV ceremony. Lobby groups complain that the minimum wage is too low to sustain a breadwinner - unless they do three jobs on the hop. As a counter measure, the Chamber of SMEs objects to further unsustainable increases in public expenditure resulting in millions of euros procured on direct orders.

In hindsight, the government registered a deficit of €981.1m in 2022, equivalent to 5.8% of the gross domestic product which is an improvement over 2021, when it saw a €1.2bn equivalent to 8% of GDP. Yes, our non-discretionary annual €350m subsidy on a state utility and grains is criticised by the Commission. In truth, the rich benefit equally as the poor. This socialist creed of widespread benefits led much of the developed world to raise the minimum wage thereby hoping to master inflation. But economists warn that minimum pay can only rise so much before employment suffers. Like a double-edged sword, rising wage costs encourage local firms to look for labour-saving alternatives such as automation, sub-contracting or employing low-cost TCNs. Please raise glasses to a curated growth trajectory.

 

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George M. Mangion is a partner in PKF Malta, an audit and business advisory firm