Finance Minister Clyde Caruana has indicated that his preference for KM Malta Airlines' future private sector investor to be another airline.
In early October, the Finance Minister had said that around one-third of Malta's national airline, KM Malta Airlines, is to be privatised. Such a condition had been imposed by the European Commission as part of the deal that gave the government the go ahead to launch a new airline and close Air Malta.
Asked whether, ideally, the private partners would be local businesses or if he would rather find a company within the aviation sector, Caruana said he wants whoever is interested to ensure two things. "A certain level of knowhow within the industry, as that would be an added benefit, and secondly, good governance. What led to the precarious situation of the previous airline was the lack of good governance in the day-to-day operations. It is meant to be a company that operates along private-business lines, and it has to do so in order to remain in business. We cannot afford to have an airline that is managed like a government department."
When it was suggested that his statement indicates he would be happier if it were another airline, he said "definitely it points in that direction, but of course we have to see what comes along".
Asked to detail the current stage of this partial-privatisation plan, the minister said that it is still early days. "It's just been six months since the airline began operating."
He said, however, that "it is something that I would like to pursue over the coming years, because that will ensure that the mistakes of the past will not repeat themselves".
The minister said that he doesn't have a deadline in mind, "but it has to be done quite early on. It there is one thing I want to avoid is that KM Malta Airlines becomes another government department, as happened in the past".
He said that in the past the national airline carried two million passengers. The minister added that KM Malta Airlines is on target to carry the same number, but by flying to 17 destinations instead of 40. "There has been an improvement in the seat-load factor. Before it was 70% and now its 90%-92%. That means that whenever we fly, we are doing so in a profitable manner. We used to operate eight aircraft with some 1,000 people and now we are still doing that, but with far fewer - 400 people."
Responding to questions about the budget, Minister Caruana said that economy has grown significantly over the past 10-12 years. He attributed this to the initiatives that were taken by different Labour administrations. "The time has come for this country to take the next leap. It's not just about economic growth, but it also needs to be about development, and that is what people are asking of this government."
"If we had to look back at the history of our economy through different administrations, it has moved from one development phase to another. Going back to the Mintoff years, our economy was based on manufacturing, which enabled us to create a certain level of development. We then moved to the Eddie Fenech Adami administration, where the economy was liberalised and the country focused more on services and the financial sector and that gave enough firepower to our economy to develop into another stage, the Gonzi administration. We have significantly reformed our laws, institutions and that made it possible for our economy to move to the next stage. We all saw what happened over the past 10 years in terms of economic growth and that is something that our country required. Now, as happened under past administrations, the recipe that was good for a number of years has to be updated to make it possible for the country to move to the next step. That is what we are saying, that we have to update our policies, have to change our recipe to make it possible for our economy to continue growing, but in a different way."
A criticism of the way the country's economy was built in recent years, was over the lack of forward-planning by the government to prepare the country for such a rapid population rise. He was asked whether he agrees with such criticism.
"A lot has happened in a short period of time, and all the growth that took place, in a relatively short period of time of 10-12 years, perhaps was hindered by insufficient investment in infrastructure to keep up with the rapid pace of economic growth. We all see the unintended consequences of that. Of course investment has increased significantly, be it in infrastructure, energy, etc. in order to ensure that the demand side keeps with the supply side of the economy. But at the same time, we are saying that what we have, has worked well, but now we have to also update policies and the way we do things to ensure that in the coming years the model we have is changed, such that we would produce more with perhaps even less."
Three major policy initiatives
The Malta Chamber of Commerce, Enterprise and Industry has acknowledged that while the government has recognised the importance of quality over quantity, Budget 2025 lacks the necessary measures and economic vision to drive a major leap forward. Asked why more measures weren't included in that direction, the minister highlighted three policy initiatives that were mentioned in his speech, two of them will be launched this year and the third by the first quarter of next year.
"In the coming weeks, Transport Minister Chris Bonett will announce and provide details about the transport policy for this country, also in order to start addressing, in a more concrete way, traffic congestion throughout certain periods of the day. I'm informed a discussion has already taken place at MCESD level, but the proposals will be made public in the coming weeks."
"Following this, there will be an announcement on migration policy which concerns Third Country Nationals, and that will be spearheaded by Home Affairs Minister Byron Camilleri. We are waiting for discussions to take place at Cabinet level and afterwards it will be made public. These two should take place this year."
The third policy initiative, he said, concerns the Malta Vision for 2050. "Economy Minister Silvio Schembri has already announced that work is underway and we expect that policy to be published and up for consultation by the end of March next year."
"The budget has indicated these three policies that are being worked on. These policies will then be up for discussion and hopefully we will then find enough support, especially from the social partners, so that the implementation and change everyone would like to see, starts to take place."
As for whether the finances have been allocated for projects which could emerge from these policies, he said that concerning the transport policy, "there is already a line item for around €5m so that the quick fixes the Transport Minister envisages can start being implemented as of next year".
There were also calls for the removal of tax on the Cost of Living Adjustment (COLA), however the minister said that he is critical about how the Nationalist Party intends to go about this, saying that "this measure is ill-thought through".
He believes that it would have serious unintended consequences. "For example, what about those workers who do not receive a COLA? The €5.24 COLA that I've announced is meant to be given to workers who do not have a collective agreement."
But he said that those who have collective agreements might have different amounts and questioned whether they would deduct from the €5.24 or if they would have to work out the individual COLA for every single worker, adding that such a move would mean differentiating between one worker and another.
He also questioned what would happen if employers then start to define more of the wage increases in collective agreements as COLA increases, so that they wouldn't be taxed. "Are we now going to skew the income in such a way so that more of it becomes untaxed, rather than taxed? In a discussion that we had, my colleague from the Opposition, said that the Opposition so far is focusing on those who receive the COLA and said that they will focus on the other workers later on, closer to the election. That clearly sends the message that the Opposition hasn't really thought about the unintended consequences that such a measure may have, and I think that we should leave things as they are. The system has worked quite well over the past 30 years. If the government wants to give a boost to people's income that should come around by adjusting the tax bands, as I did on Monday. Successive governments over the years have done so, it has worked, and I don't see why we should change the whole thing just to do something that, in my point of view, has many pitfalls that may even endanger the COLA itself."
COLA mechanism
Regarding the COLA mechanism itself, there were calls to change it in the past. The minister said that to his knowledge there aren't any talks happening in this regard within the MCESD. "I'm aware that at times employers mention the need for such change, as do unions but for different reasons. From where I sit, although there are such calls, it is highly likely that things will remain as they are, given that a change in the COLA mechanism requires agreement between employers, unions and the government. I don't think there are the necessary lines of thought for such an agreement."
As for whether, from the government's side, there should be any tweaking to the mechanism, he said: "I don't think so, for the simple reason that the system has worked well. The opinions for change arose over the past three years primarily because inflation was quite high as a result of the Russia-Ukraine war, and you don't change a system because of two or three years that were an outlier from a system that has been in place for 30 years. Rather take note of what has happened and implement the necessary quick fixes to mitigate the impact or otherwise as a result of what happened in those three years."
No mention of St Luke's hospital
There was no mention of St Luke's Hospital in the budget. In a recent interview with this newspaper, Health Minister Jo-Etienne Abela had said that there will be some announcements soon regarding St Luke's, adding that one cannot rejuvenate St Luke's without clearing its current services, and these processes will take time, confirming that the overall regeneration of St Luke's is a long-term plan. When discussing the potential for a second national hospital, Abela reiterated that the St Luke's campus would be it, and would focus on outpatient and day services. Told that enough time has been wasted in the health sector where the Vitals and Stewards deal left St Luke's exactly as it was, dilapidated, Minister Caruana was asked whether this should have been a priority.
"It is a priority. If we had to look at the government's recurrent expenditure, 25% of the increase next year is going to be allocated to health. So if there is a sector in government that absorbs a lot of resources, it is healthcare. The amount of resources in healthcare is quite significant, because prices, whether it is for medicines or equipment, tend to rise significantly year after year. Whether its Karin Grech, St Luke's or the Gozo General hospitals, I'll take part of the responsibility myself, in the sense that I want to make sure that whatever the government intends to do for the future is fiscally sustainable. The amount of millions that these three sites involve in order to perhaps carry out reconstruction or renovations is significant. It runs into hundreds of millions. I want to ensure that it is not just about having enough money to finance the capital structure, but also to finance the current one. One thing I want to avoid is going for something that is financially unsustainable and burden future generations with a cost that they cannot carry. I have this responsibility as the finance minister, to ensure that whatever is done is fiscally sound and sustainable."
The minister previously told journalists that the measures included in the budget were, at least in part, able to be introduced thanks to the cutting down of tax evasion. The minister said that he recently visited the Malta Tax and Customs Administration. "They explained the measures being carried out to ensure that tax evasion continues to be curtailed.
He said that the government is investing around €62m over the coming years. "The tax department used to work in silos, where people who worked on income tax just focused on that, those working on VAT just focused on VAT, and so on. Now we are taking a holistic approach. All databases in terms of income are being merged. In addition to that, we are amalgamating wealth databases, such as property, vehicles."
The department, he said, tries to identify ways and means as to how certain companies or individuals try to avoid paying taxes. "Thanks to AI and the IT systems we are putting in place, it is now possible for the department to do all this analysis in a matter of days. Regarding VAT, it used to take the department some five months to check certain returns and it also used to only check a sample of the population. Thanks to AI, we can check the entire population in just two days. This is speeding things up. We are in a position to better monitor outliers in the population, and that of course is leading to the desired results. That is why throughout just the first six months of this year, we managed to collect €300m more in taxes (when compared to the same period of the previous year), and that is not through raising taxes, but rather ensuring that taxes owed to the government, which may not have been collected before, are now being gathered."
He attributed this €300m that was missing to tax evasion.
Withstanding future storms
Malta was able to weather a number of storms over the past years - the Covid-19 pandemic and the energy crisis - because of what the government described as its war chest. The minister said that Malta still has enough in its war chest in case another storm strikes.
"I want to leave the country's coffers in as good shape as I found them," he said.
Referring to the debt as a percentage of GDP, he said that prior to Covid-19 and Russia's invasion of Ukraine, the figure was 43% of GDP. Now its 50% and going down. He said that the country's financials are sustainable, adding that the deficit is dropping. "This country has a robust fiscal position which can enable it to weather future storms if they come."