One of the first things that were done as soon as the Labour Party won the election in 1996 was the freezing of Malta’s application to join the European Union, and the withdrawal from the Partnership for Peace programme. Would it be correct to say that this decision continued to strain Malta’s relationship with the EU/West (a relationship that had already been strained during the previous Labour administration of the 1980s when Malta was close to countries like Libya and North Korea)?

Having spent the best part of 10 years to get the Fenech Adami administration to restrain its pro-EU membership ardour till the time was ripe, the European Commission was not too pleased to be facing a Maltese government that now was no longer interested in membership. At the time, the EU was fully intent to fill in the void left in central Europe by the collapse of the USSR and the weak state of Russia, and to deepen the single market by the introduction of the euro. However we had won an election precisely on the programme of seeking partnership with the EU based on an industrial free trade arrangement. Instead of withdrawing the membership application, in order not to create unnecessary bad feelings, we followed the Swiss example and “froze” it.

The Commission and other member governments (less so Prodi’s in Italy though) eventually moved to accept our request to negotiate a “special” relationship. Soon we were doing some tough bargaining, and there was progress. Soon too, on the EU side, they got used to the new approach and indeed proposed that Malta should host an EU-Mediterranean summit that had got bogged down in the impossibility of finding a location acceptable to all where to meet. We hosted it with great success.

With regard to the “West” – I guess you mean the US: Obviously at NATO, it was well-known in advance that our immediate withdrawal from the Partnership for Programme would follow the elections and had been factored into perceptions and evaluations. Which does not mean they liked it but they knew where Labour stood.

Actually, in 1996, relations between the PN government and the US were in a terrible state. On the US side, the release from prison by the PN government of Omar Rezaq, sole terrorist survivor of the 1985 Egypt Air hijack and bloodbath in Malta, still rankled. And there was total distrust in the managment by Malta of its financial services sector, so that the US authorities, by mid-1996, were on the verge of cancelling the double taxation agreement between the two countries, which was a big blow.

Our priority was to get this decision reversed. I made it clear that we would be committed to ensuring good relations with the US government and did have them with the US Embassy in Malta. This got to the point that we arranged for a totally unofficial “visit” by an agent of the Federal Drug Authority in order to check whether what he found tallied with the reports I was getting from our security forces about the drug situation in Malta. Had there been more time to develop this relationship, we would surely have achieved a much better outcome than the previous administration.

 

Alfred Sant, with then Shadow Finance Minister Lino Spiteri, meeting the Maltese community in New York

 

When, in 1996, Labour won the election and you became prime minister, you wanted to fulfil the promise you had made to remove VAT. But you replaced it with the Customs and Excise Tax (CET), much to the disappointment of many who saw just a change in name. Why did you promise the removal of VAT when you already had a replacement in mind (and never mentioned it before the 1996 election)? Given that the CET system had a negative impact in its months of existence, do you still believe it was the correct way forward?

I beg your pardon, but is it not obvious that when you remove a tax that is meant to generate revenues, you have to replace it with some other arrangement, especially if it has replaced a tax that did? And as I see it, in a democracy, if you make promises during an election campaign, you should keep them. Our promise was to remove VAT and we immediately set about the task. In doing so, we had to take into account the economic and financial situation left by the previous government, which was awful, and the long-range goals we were aiming for, not least vis à vis the EU.

The latter correctly regarded VAT removal as a bar to EU membership and customs union, though it made sense in terms of an industrial free trade association between Malta and the EU. But a changeover to the latter still had to be negotiated from the position we had inherited from the Eddie Fenech Adami administration.

Among other concessions, the latter had secretly pledged to immediately remove levies on EU imports, which we refused to do. So the alternative tax that we wanted to introduce had to replace VAT with an alternative protective tax on consumption that would eventually be dismantled to accommodate an industrial free trade zone with the EU; retain a consumption tax on services and be administratively less onerous on micro businesses than VAT was.

We did achieve this though it took us a few months longer than planned for various reasons. However, it’s absolutely untrue that CET had a negative impact. On the ground with small businesses it provided relief after the constrictions caused by VAT. For years afterwards, I would meet small self-employed people, not Labourites, who claimed that with VAT removal and CET replacement they had experienced an improvement in their affairs. True, the big business organisations (the Chamber of Commerce and the Federation of Industries) bad-mouthed it but their leaderships were dead set on Malta joining the EU. The GRTU, which had backed VAT removal, followed in their footsteps because they had assured their members that cash registers would be removed. Labour had never promised that.

Indeed by end 1997, economic indicators were on the up (only to tacked down again by the growing political uncertainties). In any event, CET was, as I said, an interim arrangement to allow for an industrial free trade agreement with the EU, the contours of which were already emerging in negotiations with Brussels. Eventually I believed that CET would painlessly and smoothly morph into a sales tax as a consumption tax on goods and services, on the US model.

 

Alfred Sant greeting Labour supporters during a political activity

 

Lino Spiteri, then Finance Minister, had resigned five months after the 1996 election, because he disagreed with the change. He later said that he had been an idiot in not resigning in 1994 when you had first expressed yourself against VAT without his consent. Why did you appoint Spiteri as Finance Minister when you knew about his opposition to the removal of VAT?

The version of events you present oversimplifies what happened. In politics you do have at times to bend and adjust what your ideal choices would have been in order to fit in with the perspectives of others. I knew Lino Spiteri had reservations on the VAT issue though they were never expressed too clearly, like he knew I had mine about financial services which then Finance minister John Dalli was promoting hard, and which he fully backed. Spiteri did criticise my having replied at a meeting with delegates in 1994 that we would remove VAT when in government. This was during a question-and-answer session when to a straight question you are expected to give a straight answer.

Following it, there were many internal policy discussions on VAT during which there was no bar on raising any kind of exception or fudge – by MPs, delegates or whoever – to what was being proposed. Spiteri never, as I remember matters, did so. Indeed, he made a number of public declarations in which he stated he would take responsibility for the removal of VAT if Labour were to govern.

So given Lino’s experience and huge intellect, appointing him Minister of the Economy and Finance was a no-brainer. If anything his guarded approach over VAT would ensure that in removing it, the baby would not be thrown out along with the bathwater. However, it soon emerged that he did not really have his heart in the ministerial enterprise, which in his case, did not just cover the VAT issue but involved the much wider problems of reversing the huge financial mess the Nationalists left behind them, which he strongly criticised. Twice in five months before he did it irrevocably he had told me he was resigning. To be honest, I totally disbelieve that a man of Spiteri’s stature could ever have been “an idiot”. My speculation (and I do not usually speculate) was/is that he had assumed Labour would lose the 1996 election.

 

Alfred Sant taking the oath of office as Prime Minister from then President Ugo Mifsud Bonnici

 

As PM, you adopted a no-nonsense approach to anything which could be construed as crossing the line. Charles Mangion had resigned after taking responsibility for having requested a presidential pardon for a prisoner convicted of drug charges without the consent of the Cabinet. Your successors did not adopt the same measure; for example, you were among those who believed that Konrad Mizzi should have immediately resigned in the wake of the Panama Papers scandal. Could your strict stand on accountability and discipline be a reason why you are seen differently by Labour supporters than they see other Labour leaders?

Charles Mangion is a totally honourable man and it was my intention to bring him back to Cabinet after the lapse of a year or so because he also was an effective minister. However, I doubt whether the matter you refer to affected people’s perceptions of my leadership to any extent compared to another much wider issue.

This was the impact on Labourites of the wide-ranging reform programme we launched and which, as the slant of your questions shows, has been completely forgotten. Once in power, the Labour government launched a whole raft of initiatives intended to modernise the island’s institutions. Much lip service had been carried out about this in the past but clearly the Eddie Fenech Adami administrations, especially the second one, had focussed on ensuring feel good. Its governance was sloppy and backward-looking, public administrative outturn was wasteful and inefficient. We needed to reverse that approach.

On top of this, there was the priority to rein back the government deficit for which stringent measures needed to be taken. During his brief stint as Finance Minister, Spiteri had been emphatic about such a priority. I fully agreed with him and carried the approach forward after his departure. This meant ensuring that discipline (like about attendance at work) and financial controls (like about unemployment benefits) were strictly enforced, which did not generate applause.

Meanwhile, however, we achieved a steady advance along many vital fronts. Beyond the Partnership for Peace, EU and VAT issues we’ve already discussed, let me mention at some length but not exhaustively, other issues.

On the Tal-Qroqq hospital, supposedly being developed as a state-of-the-art research facility, but for which though building had started, there was no overall plan; following a root and branch review and the dismissal of the leeches from San Raffaele, the project was salvaged by turning it into a general hospital (with a capacity greater than it is now following further short-sighted PN tinkering post-1998).

The Drydocks, which had been making annual losses of over €9 million, all underwritten by the government, were taken in hand. The government assumed majority decision-making control and responsibility for Drydocks affairs. A report (Appledore) was implemented by which the Drydocks and its personnel were being split into two, with one section concentrating on ship-repair, the second section branching out into diversified new activities on the model of a Norwegian shipyard that had sucessfully effected the transformation.

Policies and the administration of the Army were revised to ensure that it focussed on direct operational issues, set up an auxiliary part-time force, recruited younger, better educated men and women, and stopped carrying too many personnel well past the age of active service.

Tourism was seen as the sector which could first and best take-off from the economic stagnation that was part of the legacy left by the outgoing administration. It was accorded prime access to public investment funds: a huge upgrade of the whole Buġibba area was carried out in a few months; the same later for the Marsaxlokk, Marsascala, Birzebbuga areas; the liberalisation of casinos was accomplished; the go-ahead was given to build a new cruiseliner terminal in the Grand Harbour and the yacht marina project at Cottonera was finalised, subject to parliamentary approval.

To accomodate a new ST Microelectronics investment, a huge new factory was built in superquick time; plans for the creation of a new crafts village at Ta’ Qali were put in place (and soon buried post-1998) and at Air Malta a restructuring exercise was launched to repair the enormous damage done to the airline’s viability under the second Fenech Adami administration by the incredibly daft purchase of short-haul planes that were not at all suited to the airline’s needs.

The Management Systems Unit at the centre of the government system as a planning hub – which I had strongly criticised in previous years as an ineffective “advisory” money sink – was transformed into a civil service body, equipped and mobilised to deal and “solve” strategic problems as a hands-on consultancy. It started to deliver.

Again, in line with our manifesto, we set up a special judicial tribunal to which a judge was specifically assigned, in order to vet and compensate when appropriate, claims about injustices committed during the previous administrations up to the day when the office of the Ombudsman started operations – this in order to forestall fake claims about past abuses.

Regarding the police force, an in-depth reform programme was being carried out to reorganise and change operating systems, to invest in new police equipment, to make officers more directly involved in police rather than clerical work, and to prepare a new statute for the Police Force making it respond to the President of Malta. The programme was giving results, but again was stopped in its tracks post-1998, though there was absolutely nothing “political” in it.

In agriculture, apart from the relief given to farmers by the protective measures that came back into force, modernisation investment and regulations were introduced like for the enhancement of the Chadwick Lakes area and programmes to revitalise the traditional building of rubble walls in the country. However, some measures, which were sorely needed, backfired politically – like when we opened a register of private (and strictly speaking illegal) boreholes, which had been allowed to proliferate in previous years.

In Gozo, following the publication of a white paper, an institutional reform was proceeding by which a Regional Council was being set up with its own offices, administration and budget, plus a development plan for that island.

On corruption, a proposal to set up a standing anti-corruption tribunal with a judge at its head having full police powers was strongly canvassed with all interested quarters. The proposal was sabotaged by the PN establishment, the legal profession and the judiciary, while the business constituted bodies remained less than interested.

An opening was effected for a public discussion on the issue of divorce with the setting up of a committee to advise on the situation of the family in Malta, which reported that the introduction of divorce needed to be placed on the agenda.

In public broadcasting, changes of policies and personnel with investment support from the government led to the activation of a new burst of creativity and success in this area, with viewers suddenly switching from Italian TV channels to which they had become accustomed back to Malta viewing.

The telecommunications facility, Telemalta, was restructured into a company with stock so that part of it was floated internationally as a public company, in order to tap new capital but just as importantly to make it subject to market forces and therefore better able to withstand political and clientelistic manipulation.

An extensive exercise was run to change the water and electricity tariffs to make them reflect current costs and bring Enemalta back from the deficits it had been plunged into. This was a political and economic disaster. It was my fault as I did not want to micro manage reform from the top (even though my training had been that of a technocrat) like previous Labour administratons had done. So we left the tariff adjustments and implementation to Enemalta’s technocrats, who made a mess of it. It led to our being labelled as lacking a “social conscience” by political adversaries and others with hidden agendas.

Over the short-term, many of these initiatives implied pain and served to drain away popular support but they were needed if some steps forward in the modernisation of Malta’s institutions were to be achieved (it is still largely deficient, no matter what we pretend). Another criticism internally was that we tried to do too much in too brief a time. Yet, the belief (I still think – not unreasonable) was that over a five-year term, the pain and discomfort would give way to hugely positive results. This was not to be.

The remembrance of all this for many Labourites was not pleasant. I understand and sympathise, for they had been at the receiving end of widespread discrimination under the previous administrations by the PN, which excels at playing the holier than thou game but equally excels (in reality much more than Labour ever did) at grinding down those who fail to support it. So the feeling persisted that Labour had let down its supporters when in power, by not ensuring they got all the rewards or compensations... though they did get some. In reality, the overall vision as well was to bring to a close (fast but not all at once) the never-ending seesaw between rewards and retribution that has been the hallmark of the two parties in their successive administrations. Obviously, that goal or vision was not achieved. Nor did anybody else try to achieve it later.

 

Next week: What led to the collapse of the Alfred Sant government in 1998

 

Part 1: The 1981 election and the transition from Mintoff to KMB

Part 2: The 1980s’ bulk-buying system and public sector employment

Part 3: The Church schools battle and the 1987 constitutional amendments

Part 4: The post-1987 election years and the rise to the Labour leadership

Part 5: A new image, the anti-Vat position and the Cittadin Mobil