Economists say that the government needs to be courageous and have a strong political will to begin shifting Malta’s economic model which, in the past decade, has been structured on imported labour.

Finance Minister Clyde Caruana has frequently expressed a need for Malta’s economic model to change, with people now looking for an emphasis on one that focuses on their quality of life.

He has said so in the light of a substantial growth in the population – up from 428,156 in 2013 to 563,443 in 2023 – to sustain economic growth. Caruana said that Malta’s population will have to climb to 800,000 to keep the economy growing at the current rate, unless a new model is devised.

The Malta Independent on Sunday spoke with three prominent economists and University of Malta lecturers for their thoughts on the Finance Minister’s statements and how Malta’s economy should develop moving forward.

Caruana has used the phrase “easier said than done” when speaking on the issue, and Professor Lino Briguglio (left) believes that the Minister is right in that sentiment, as “economic structures cannot be changed overnight”.

When asked what should be done to change the country’s economic model, Briguglio replied that there are now too many enterprises depending on cheap labour, and named construction, public health, tourism, as well as taxi and food services as examples of this. He remarked that if this “quasi ‘slavery’ is banished, many businesses would go bust and Malta’s GDP will register very low growth if not a decline - something which governments normally abhor”.

He summarised that, therefore, a change in Malta’s economic model will require a government with foresight and a strong political will. Furthermore, he added that such a change would also have to be planned and implemented over a decade or so.

Going into further detail about what would need to be done, Briguglio said that the economy would need to focus on attracting businesses with a high value-added per worker. He explained that this would respect Malta’s size limitations, improve Malta’s international competitiveness, and reduce social discomfort from issues such as overcrowding and traffic congestion. He added that it would also lower the possibility of culture-clashes, and said that around 25% of Malta’s population, “if not more”, are not Maltese. He clarified that he is personally in favour of multiculturalism, but that “like many other things in life, it often happens that too much of a good thing can become undesirable”.

Dr Joe Schembri (centre), when asked the same question, said that he agrees in principle with a lot of what Caruana has said in regard to changing the country’s economic model towards a competitive one which delivers an improved quality of life. He added that in the role of Minister of Finance, Caruana is in a position to drive, “or at least influence”, that change.

Concerning Caruana’s sentiment that such change is easier said than done, Schembri said while that is the case, “because economies are path-dependent and one cannot forget the past and start afresh”, the process needs to begin from somewhere. He said that the present model is putting “unbearable strain” on the country’s infrastructure and the general quality of life, “even if it provides solutions to labour shortages and tax revenue to government”.

Similarly to Briguglio’s line of thinking, Schembri remarked that changing course in these matters requires time and a tremendous effort. He added that he believes the country can start from seemingly simple, “but courageous”, measures.

Schembri said that he agrees with what Caruana has previously said in regard to the construction sector having undue influence over the country’s economic development, and so he believes that there needs to be a change in the way some things are done, such as how the Planning Authority issues permits. He added that the contentious regulations “that have triggered a construction boom and are now threatening our core villages” need to be addressed. He said that doing this would mean that construction does not remain a “special sector” and investment would start going into export-oriented economic activities.

The UoM lecturer said that the country needs to resist the temptation to attract more tourists and instead offer a better experience to visitors in its challenging transition towards sustainable, higher value-added activities, “once again rightly pointed out by Minister Caruana”.

“In Foreign Direct Investment, we need to be much more effective at attracting technology and innovation-based companies that sell solutions to clients outside our shores while offering good salaries,” Schembri said.

He repeated that none of this is easy, and said that he agrees with Caruana’s sentiment that investment in education is essential.

The Malta Independent on Sunday asked Briguglio whether he thinks that the import of foreign workers would still be necessary for certain work even in the case of a shift in the country’s economic model, as it has often been said that the Maltese seemingly do not want to work certain jobs.

Briguglio replied that he would clarify that notion by adding that Maltese do not want to work certain jobs “at the current wage rates”. He added that it may be possible that more Maltese workers would be interested in such jobs, with the right pay.

Staying on the same point, he continued that a major problem in Malta, and especially Gozo, is that a relatively high proportion of Maltese workers are employed in the public sector, which he said is artificially constraining the Maltese labour market.

“The model I suggest might be facilitated if, with older people retiring from the public sector, and not being unnecessarily replaced by younger ones in the same sector, the Maltese labour supply in the private sector would grow, and coupled with better, non-exploitative wage rates, local workers would be more prone to take jobs which are now mostly taken by immigrants.”

Briguglio, also a lecturer at UoM, said that Minister Caruana used to be one of his students and later became a colleague of his as a lecturer. Referring to Caruana, Briguglio added that “he is well-grounded in economic principles, and what he says makes economic sense”. He continued that while it is true that Caruana helmed JobsPlus when the trend of importing labour began, he is not convinced that Caruana truly believed in the model as a long-term solution, “and he possibly did expect that it was to go out of control”.

“It is never too late,” Briguglio said in regard to beginning the process of an economic shift, but he repeated that the change has to be planned over the course of years and would require strong political will. He said that such change may potentially be regarded as unfriendly towards businesses, “which is true for businesses thriving on cheap labour”. He added that it could also initially lead to a higher cost of living due to services such as taxis and food deliveries becoming more expensive, but he concluded that such change would ultimately pay off in the long run because the current system has a “dismal future” ahead of it. 

“Who wants an economy built depending on cheap exploited labour?” Briguglio asked.

For his part, Schembri said that it is not too late, but that enacting such change becomes harder the longer one waits to take the necessary measures. “Any major transition will have unpleasant consequences, at least at first.” He continued that as the holder of the public purse, the Minister of Finance has the power to influence measures across all of government.

“As the Minister himself hinted, he probably has a hard time convincing his cabinet colleagues. This, I understand, and I hope he will find the courage to do what is right, because changing the course of our economy cannot wait much longer,” Schembri concluded.

The Malta Independent on Sunday also spoke with Professor Philip von Brockdorff (right), who said that while Malta’s economy has proved to be resilient in times of crisis, the country’s fiscal policy is heavily dependent on economic growths “of a magnitude of at least 3.5% growth in real terms with the tax revenue it brings”. He added that anything below that would see alarm bells being set off due to the spending commitments of the public sector.

Von Brockdorff said that it is against this background that the question of which economic growth model is to be applied in order to sustain the country’s public finances must be asked. He continued that the existing model has seemingly worked since public debt remains well within the limit set by the European Union. “Our public deficit has on the other hand exceeded the limit of 3 per cent but will return to around that level in about three years’ time.”

With that said, he continued that it is this existing growth model that is now the cause of strain on the country’s limited capacity. He said that some of the economic sectors are heavily reliant on foreign workers, and while this has boosted consumption and tax receipts for the government, the “enormous strain” on Malta’s infrastructure is now being felt, including in key services such as health and public transport.

“Simply put, we have outgrown our capacity and to top it all, annual tourism numbers have now surpassed the three million mark. It’s just not sustainable anymore unless we completely revamp the way we live, build, and commute.” Von Brockdorff added that he agrees with the notion that such change is easier said than done and requires “vast amounts of financial resources that simply aren’t there”.

On the matter of shifting to a more sustainable economic model that does not rely on foreign workers, he said that he does not believe such a shift will happen in his lifetime. “Our economic model is so entrenched in the way we do things, it’s going to take a supernormal effort with a super strong political commitment.” He continued that despite the good intentions of social partners represented at the Malta Council for Economic and Social Development (MCESD), “all important decisions are taken elsewhere, and the political horizons don’t look beyond the electoral cycle”.

Von Brockdorff said that admitting defeat and giving up is not the answer, rather there needs to be an “almighty commitment” by the government, social partners, and other stakeholders not represented at the MCESD in order to “take the bull by its horns and deliver a long-term strategy” which would shift the country’s economic growth model from what it currently is to something far more economically, socially, and environmentally sustainable.