The Malta Independent 26 February 2024, Monday
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Inflation ‘a Result of incompetence and inefficiencies’

Malta Independent Saturday, 18 July 2009, 00:00 Last update: about 16 years ago

The GRTU, Malta Chamber for Small and Medium Enterprises, attributed Malta’s high rate of inflation to incompetence and inefficiencies in the country, and to sectors which were too strong to control, to the failure of the privatisation in the harbour, the freeport and the airport, to the overwhelming powers of the insurance companies, and to the dominant position the banks hold, among many others.

Europe has a low rate of inflation, or a negative rate, but in this tiny country that is Malta, the GRTU said, there is high inflation which does not make sense when compared to the economic expansion being registered.

Inflation in Malta does not correspond to the prices of products bought at the grocer, as many seemed to think. The economic reality is that the rate of inflation reflects the output level of the country.

The rate of inflation however goes up as well when there is no pressure of demand and the national product is not expanding. This happens when the costs for those offering a product or service go up to such an extent that the extra costs have to be reflected in prices.

This is what is happening in Malta. Wage rises have not been excessive recently, but economically they were not sustainable. There was no link with productivity, and that feeds inflation directly.

Then there are the costs the government and the public sector impose on the rest of the economy. When public sector costs are in wages, social services and government programmes, they have to find a source for funds and no matter how much we rely on EU funds, the biggest sources of money are taxes and social contributions. When the government does not make ends meet it creates budget deficits, ending in a bigger national debt and more interests on that debt.

To escape this trap the government raises the tax rate, and the tariffs in electricity and water, removes subsidies, introduces fines and tariffs, and so on. Trouble starts when the government cuts expenditure and queues form to be served at hospital, there are difficulties with the local councils, contractors are not paid, the power supply fails, and there are complaints all round.

They needed to reform seriously, so that the public service reflects efficiency and productivity. There is unnecessary bureaucracy and an unnecessary burden of public costs which have to be made good for by the private sector, which has to raise prices to meet costs. Inflation rises and business and the country lose competitiveness. Jobs are threatened.

There is incompetence and there are inefficiencies in almost all sectors. What has Malta gained out of the port reform? Much was expected out of it in Grand Harbour and the Freeport but golden opportunities were lost. It is not true that the privatisation of the ports has been a success. With all the reform that was made, some things today are worse off, not better.

It is the same at the airport. In airline tariffs Malta’s airport is among the costliest in the world. The tariffs imposed on aircraft for every passenger, and every kilogramme of cargo have to be borne by importers, exporters and tourists. Privatisation of the airport did not give the desired results, and for the private owner to make profits and issue dividends we are carrying high costs.

It is the same at the banks, the GRTU said. The commercial banks have a dominant position and do what they like. No one bothers them. The Malta Financial Services Authority and the Central Bank have no control over them. It is the same with other financial institutions, such as insurance companies. Who has any control over the insurance companies? And does anyone think there is any control on shipping charges?

In the private sector there are inefficiencies as well, feeding inflation. The worst are in the distribution sector. There are huge costs in moving a product from one place to another in the country. It is as if the electronic revolution never happened. There are particular sectors which are choking in time worn practices, such as the systems operating at the vegetable and fish markets, the pitkalija and the pixkerija. They have been talking of a reform there for 40 years, nothing has ever been done. And the price of bread is still in concubinage with the flour monopoly.

Even in sectors where progress has supposedly been made, as in telephony and the provision of electricity, there are huge inefficiencies. The Malta Communications Authority and the Malta Resources Authority are not doing enough to ensure that services are efficient and that the prices we pay are truly the cheapest possible.

The tariffs slapped on us by Enemalta and the Water Services Corporation are the main cause of our high rate of inflation. This is a clear example of going on without reform, the GRTU said. The two corporations could not go on with subsidies and crass incompetence, and the antiquated and wasteful equipment they had. And after years of doing nothing the authorities seemed to rise from their sleep and what they could have raised piecemeal over the years they imposed it all on us at one go, without giving a hoot about the impact on inflation and the country’s competitiveness. Neither the domestic consumer, nor the commercial and industrial consumer had expected such a blow at such a difficult time for everyone.

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