Assessing the real state of our economy is becoming an increasingly difficult task. It is often the case that the reality on paper and that on the ground are very different. I must confess that I am often lost about which reality to believe. Just take a look at the messages coming through the media.

On the political level, government is saying that economic growth is picking up, while Labour argues that this is not true, stating that even official government statistics are unreliable. Even civil society, through the media, is relaying confusing sentiments on current economic performance.

The GRTU, in the main representing small to medium size businesses, is highly critical of the economy and more so of the performance of government and public entities. The MHRA representing the tourism sector has also been highly critical but seems to acts in fits and starts and lacks consistency and follow-up in its criticism.

Surprisingly, the Chamber of Commerce, which inevitably represents the interests of larger business entities, appears to be very absent in the media at present and one cannot really assess their take on the economy at this particular moment in time.

The FOI is caught between two realities, namely the difficulties facing those members producing for the local market and the marginal improvement in the performance of its members that are export-oriented. Most of the trade unions present a wide spectrum of opinion on the economy’s performance, ranging from cautious optimism to determined negativism. To add to the overall confusion we now also have the ranting of the two far right groups who would have us believe that all our economic problems are due to irregular immigration.

Why is it that in an economy of our size, the messages emanating from various sectors are so confusing and in many cases contradictory? Why do we seem to be living two economic realities simultaneously? Who is right and who is wrong? Who is being realistic and who opportunistic? I feel that the mission of the Greens in economic matters is to present a clear picture of the opportunities and challenges faced by our economy without the inevitable overdose of bias and pique emanating from the two large political parties, as well as the understandable sectoral bias from different members of civil society. This is the way we see things at present.

Malta is inevitably being split into two economic realities. Inevitably, because this is a reality that every society that embarks on free market liberal capitalism ends up facing. The first reality is that being faced by one section of the population that is becoming ever more affluent; the second reality is that being faced by a very large part of society that seems to be increasingly struggling to make ends meet. “Failing to make it till the end of the month” is becoming a reality for many of us, not only those who have traditionally considered themselves working class. It may just be my perception, but doesn’t it seem that while an increasing number of Maltese can afford to run around with ultra-expensive 4 x 4s, so many of us have to budget carefully to meet the next car maintenance bill?

This dual reality facing individuals is also being experienced in the corporate world. While the vast majority of small businesses are struggling under the weight of competition, regulation and weak demand, public corporations and the larger industrial groups have never had it better. The reality the corporate world is facing is that of a concentration of power in the hands of a few, with the result that the small and medium size business is being squeezed out. Capitalism, of the brand we have adopted, does lead to this. While everyone gets better overall, the gap between the haves and the have-nots increases exponentially. It is poverty of the relative rather than the absolute type.

What makes this reality even more dire, at least in the corporate world, is that public corporations and laarge industrial and commercial enterprises enjoy an element of insularity from competition that the SMEs do not. This insularity emanates both from the regulatory environment as well as from the commercial environment. Let us take the banks and telecom companies as an example. For somebody to set up a new bank or a new telecommunications company the regulations are (rightfully, may I add) absolutely horrendous. This creates an institutional “barrier to entry” and cushions industry incumbents from competition.

Furthermore, the nature of such businesses is very capital-intensive, with many million of liri needed to “set-up shop”. This also restricts competition. It is not just the banks and telecom companies that are enjoying this privileged market position.

The large commercial groups today enjoy so much marketing and financial muscle that it is easy for them to outbid and outwit their much smaller competitors. With liberal capitalism as our dominant economic model, it is naïve for anybody to think that the big fish will not get even bigger, while the small fish scrounge for the leftovers.

On the other hand, take our SMEs. What does it take, for example, to set up a retail outlet, apart from the inevitable hassle with Mepa? Very little, in truth. It is for this reason (but not this reason alone) that we have seen the mushrooming of the retail sector, not just in traditional shopping towns, but indeed all over the island. While the Greens support competition in the interest of consumers, we cannot help feeling sympathetic towards the small entrepreneur, who feels his business threatened by competition and enjoys few, if not zilch, barriers to entry. The solutions to this status quo are not many. I have one to offer.

Taxation reform is needed in order to address the exponential difference in market power between the powerful and the small. It is indeed silly that all businesses, and indeed all individuals, irrespective of their earnings and market position are subject to the same top rate of income tax. Malta is actually one of the few countries in the EU where this is so. In the UK, for example, there exists a small companies tax rate of 19 per cent, which is very much lower than the rate paid by public companies and large industrial firms and/or groups of 30 per cent.

While the Greens can understand the sentiment of people like Dr Frank Portelli, who recently argued in favour of the imposition of a windfall tax, we do not favour such because windfall taxes should be levelled on windfall profits that must, by definition, be extraordinary in nature. The record profits of public companies are structural in nature, not extraordinary. What we need is a more permanent change in the tax system.

Alternatively, what the Greens advocated is a gradual increase in the tax rate for large companies who enjoy a privileged market position from 35 per cent to 40 per cent (economist Karm Farrugia has argued for something very similar that he has very adequately coined “an oligopoly tax”).

This additional tax revenue should be used to simultaneously target a reduction in the income tax rate for small business from 35 per cent to 30 per cent. The additional tax revenue from increased compliance should be channelled into welfare reform, specifically pension reform.

Edward P. Fenech is Finance and

the Economy spokesman for

Alternattiva Demokratika

[email protected]