The impact of the Stabbiltà mechanism was negligible, The Malta Chamber of Commerce, Enterprise and Industry has said, adding that if the government were to extend the scheme, it would just be a public relations exercise.
Two officials from The Malta Chamber, CEO Marthese Portelli and Council member Silvan Mifsud, were interviewed by The Malta Independent on Sunday, where they stated that instead of this mechanism, the government's focus should be on addressing issues that add on costs.
The Stabbiltà measure was introduced by the government in February of this year. The government's aim was to maintain stability in essential food prices, where the government said that it collaborated with major food importers and sellers. The agreement ensured a minimum 15% reduction in Recommended Retail Price (RRP) based on the October 2023 rates for 15 food categories.
"From the very start, The Malta Chamber expressed itself against such an intervention. We believe that this approach is regressive and reminiscent of decades ago when consumer protection came at the expense of consumer choice, and the government controlled the market instead of promoting competition through proper monitoring and regulation, and instead of allowing the market to develop and operators to openly compete according to consumer preference," Portelli said.
"Our members weren't happy with the way the measure was introduced - apart from being indirectly imposed upon them, they had to absorb additional administrative burdens in terms of reporting and operations. In reality the price variations experienced were mainly because of competition, rather than because of Stabbiltà," she said, mentioning "price wars" between supermarkets.
Mifsud, who is also an economist, said that "the impact of the Stabbiltà initiative is negligible". He stated that the government is attributing the decrease in food price inflation entirely to Stabbiltà, however, he said, "this is not the case".
He used the Harmonised Index of Consumer Prices (HICP), which is a measure of inflation that is comparable across European countries, to highlight The Malta Chamber's argument.
"We focused on the HICP relating to food. I reviewed a period of time to see what the situation was prior to the introduction of Stabbiltà, from January 2023 until July of this year, comparing the Malta HICP rate for food to the euro area average rate - showing how food prices were rising in the euro area and the rate in Malta."
He said that when comparing one month with the same month a year prior, aside from a spike in December 2023 and January for Malta, "food prices in Malta rose at a lower rate than they did before those dates. However, he explained that the increase seen in Malta's food inflation rate has remained higher than the euro area average rate increase since August 2023, and that since the spike in December 2023, which was before the Stabbiltà measure came into effect, "we never reverted to the smaller difference gap between our rate and the euro area average rate that there was prior to that spike, even with the advent of Stabbiltà".
Source: Eurostat
He said that, taking all the figures into account, this shows that the impact of Stabbiltà was, all in all, "negligible" and that the reduction in the rate of increase in food prices was largely due to lower increases in food prices in Europe and also a higher level of competition in Malta.
They mentioned that there were cases where the same item, though from a different brand than the one covered by the Stabbiltà mechanism, was actually cheaper.
Portelli said that Stabbiltà was worked on the Recommended Retail Price (RRP), which is set by the importer. "Most sell to distributors and retailers below that price, particularly as they buy in bulk." Mifsud said that there was already part of the market pricing itself below 15% RRP before the mechanism came in effect. "From October until now, the increase in international food prices dropped, so for a big part of what was covered by the scheme, the scheme became almost irrelevant."
Asked what the situation would be like if there wasn't the Stabbiltà mechanism, Mifsud said that looking at the different food categories, he believes that the situation would still be similair to what it is currently. "The two primary reasons for the slowdown in the rise of food prices are the decrease in input costs from abroad, and the competition in Malta, which has grown even harsher."
He said that forward projections of such prices, prior to the mechanism, were that the price increases were going to reduce.
As for what The Malta Chamber would do instead of a repeat of the mechanism, Mifsud said "that the Malta Competition and Consumer Affairs Authority has all the necessary tools to perform any market analysis it deems necessary, conduct information campaigns and monitor operators to ensure fair competition. By doing so, it would contribute to making the market more efficient and competitive".
Portelli said that The Malta Chamber also highlighted structural issues that translate into higher prices. "Our importers face importation costs, which are not necessarily experienced by other EU countries. Whereas most EU countries can transport overland, we have to use either air or sea transport, which is more expensive and less reliable. We also have the traffic congestion issue, which is indirectly contributing to price increases as, whereas before it was easier for a deliveryman to distribute to eight different shops within a specified time, today because of the traffic increase, that has gone down to four within the same timeframe." There are other costs, she said, and spoke of the need to invest in automation.
"We have been repeatedly drawing the government's attention that, rather than populist initiatives and kneejerk reactions, which are based on short-termism, it is important to address the root of the issues at hand, like the aforementioned, that contribute to added costs."
As for their thoughts on the possibility of the government keeping the Stabbiltà as is and extending it, Mifsud believes it would be more of a "PR exercise than a way to change anything drastically in the trajectory of food prices, unless something drastic happens in the international market that affects food prices".
"If we really want to help people, we need to think bigger," Portelli said. "We would like to see tangible proposals that go beyond short-termism and leave a positive impact even over the longer term, and where both the business community and the general public stand to benefit. For example, in order to help in addressing energy costs, The Malta Chamber proposed the refunding of VAT paid when changing appliances to more energy efficient ones and removing VAT when it comes to the installation of PV systems. That is the kind of thinking we want the government to adopt - helping people and companies better manage their money and get better returns while at the same time working in the best interest of the country, rather than quick PR exercises."
Growing the economy
Shifting focus to the economy, Portelli was asked about the strategies for its growth in the coming years. "Since 2020 we have been advocating that we need to move away from a labour-intensive economy to a high-value added economy and one that takes into consideration well-being. We need to learn how to do more with less. In order to be able to do this, we need a complete rehash of the way our current economic model operates. Recently the Minister for Finance, Clyde Caruana, said that as things stand, we will need another 20,000 new workers per year. This is not sustainable. So we definitely need to change it," Portelli said.
"We need to go from a model that is very labour-intensive to one which is more productive and does more with less. We need to start seeing how we are going to move towards a high value added economy." She said that the current model saw more workers being imported which is creating a strain on infrastructure "and who have given us very little back when it comes to skills and to high value added. This needs to be inverted... we need to bring in high skilled workers and we need a complete overhaul of our education system to make sure that the Maltese coming out of our education institutions have the actual skills required to meet the jobs of today and the future". She also spoke of the need to help companies automate and become more digitised, and to attract Maltese who have emigrated back to Malta.
Corruption scandals erode public trust in the Maltese system
Asked about the impact of the frequency of corruption scandals in the country on businesses, Portelli said that "they always have an impact on business. Corruption scandals effect credibility and trust, two very important components when doing business. Corruption scandals create unfair playing fields. Corruption scandals also erode general public trust in the Maltese system itself. Good governance is very important - it is required at all strata".
Whenever there is a scandal, or major inefficiencies identified within the government, she said, "ethical business stands to lose and rogue traders continue to ride roughshod over those who are operating in the right and correct way".
Asked specifically about the Identità scandal, she said that businesses rely on official documentation, such as ID cards, for their proper functioning, and management of commercial risk. "Ethical businesses are being faced with higher commercial risk arising from uncertainty on the veracity of the ID card as an official document."
One of the points raised in the Chamber's pre-budget document is for the government to stop the adoption of practices that propagate a culture of clientelism, increase inefficiency and lack of transparency. The Malta Chamber expects the government to adopt a zero-tolerance policy for any kind of abuse that is facilitated by those entrusted with political or administrative responsibility. Asked whether businesses feel there is unfair competition and whether the government has a favoured few when it comes to contracts, Portelli said that a recent survey confirmed this sentiment. "Yes there is this feeling among businesses, that some businesses may be more favoured over others. This is where accountability and transparency come into play. Public procurement needs a complete overhaul. Here I am not referring only to the department of contracts, but all of the government, its entities and authorities that procure - services, goods, products, solutions - with public funds. Public funds are not the government's. They are paid for by citizens and businesses, and government is the administrator entrusted with their proper management.
Portelli insists that clientelism needs to stop. The Malta Chamber expects the government to adopt a zero-tolerance policy for any kind of abuse that is facilitated by those entrusted with political or administrative responsibility, she said. One of their proposals focuses on an automated customer care with real-time tracking technology and verification levels. "Human interaction needs to be minimised by using digital tools to provide a more objective and consistent service." She also points out that "enforcement agencies must be free from political interference and must be adequately resourced".
Whitelists and blacklists
In another proposal, The Malta Chamber wants the introduction of a whitelist to ensure that government entities engage with reliable and reputable suppliers, and a blacklist with clearly established criteria against defaulting contractors and defaulting service providers.
Asked whether the government is doing too much business with shady businesses, Portelli said: "We would like everything to be done above board, and in the correct and most transparent manner; this is why we are calling for a white list and a black list."
"Whitelisting should serve to give peace of mind to the contracting authority, that they are doing business with businesses that are administrative, financially and technically in order. Blacklisting will serve to ensure that those who repeatedly fail to observe their contractual and legal obligations, as well as those who act unethically, are made public. This information is needed at government level, but also by businesses and the general public. Businesses need to know who they are doing business with or who they intend to do business with, and consumers should know who they are buying their products and services from."
She said that The Malta Chamber of Commerce also wants a public contracts register to be set up, that would include information such as contract milestones, deliverables, when payments were made, if there are any variations or modifications, the direct orders and reason thereof and more.
One of The Chamber's economic proposals is that the COLA should not be taxed, but one could argue that this would be quite a bit of revenue lost for government which could then be used for healthcare or roadworks for instance. "If it was used correctly, if it were invested in a system that sees a proper return on investment one might say it makes sense. But our argument with respect to the COLA is that it is there to compensate workers for the cost of living increase of the previous year. So really and truly COLA is a reimbursement for extra, additional expenses in terms of the increased cost of living. If the government really wants to help employees, why tax the amount that is there to compensate retroactively for inflation? It doesn't make sense."
The second part of this interview will be published in Monday's edition of The Malta Independent.