Pulling the same rope in the workplace

Newly-appointed director general of the Malta Employers’ Association, Joe Farrugia, talks to MIRIAM DUNN about his new post and how he thinks Malta can flourish in the international market place

What is the reaction of the Malta Employer’s Association to the Budget?
I think if there is one word I would use to describe this budget it is ‘cautious’.
The budget acknowledges that certain economic problems are still there, but that at the same time there are some positive signs.
I think the Finance minister has taken both of these factors into account. For example we have a drop in government debt in relation to our GDP and more efficient collection of taxes, but the international situation doesn’t look good, obviously heightened by the 11 September aftermath and that naturally affects our economy.
I think the government has weighed up all these factors and opted for a cautionary approach, which is understandable.
Perhaps there was disappointment in some quarters because expectations for this budget were higher, probably because of some budget hype or because the last budgets were rather austere. But there were plenty of positive measures announced, such as the reduction of income tax rates for married couples making a single declaration.
The lowering in fringe benefit taxation, on some vehicles and the incentives for SMEs are also welcome. The government showed it recognises that where restructuring and EU accession are concerned, this is the segment requiring the most help.
We also noted the fund to be allocated to agriculture and the mention made of social security reform. The news that there will be a distinction between what is being paid for pensions and other services is important since we need to identify just how great the welfare gap is. This problem must be viewed as a bomb with a fuse and now is the time to look ahead and see what measures we need to take to avert a potentially explosive situation.
Are you concerned about the impact that the 11 September attacks on consequent war will have on Malta?
There is no doubt that the events of 11 September have produced threats to the economy, both direct and indirect. The airline has been affected and one can also expect repercussions within the rest of the tourism industry. How can one turn a threat into an opportunity is the question we must ask ourselves. Malta has always been considered a safe destination and perhaps if we can step up the efforts to emphasise this distinguishing feature when comparing our country to other riskier destinations, perhaps the negative impact could be minimised.
The Finance minister has said that the party is over for tax evaders. How do you react to this statement?
The MEA is against any form of tax evasion. Traditionally the culture of tax evasion emerged in Malta because there was a time when taxes were generally considered to be unfair. And in fact, in the early nineties when the government introduced certain income tax reductions, tax collections increased.
I think there has to be collaboration and understanding between all the parties concerned, although I don’t think it’s fair to paint a picture of all businessmen trying to wriggle out of paying tax.
Yes, some culture changes are needed, and these take time, but they must also start from the government side.
Tax collection should not be portrayed as just an accounting exercise – but as part of a process for everyone’s benefit. I think the more the public perceives that the money is going to the right places, the less incentive there will be to evade tax. Fostering this change in attitude is important. The government must highlight the advantages of paying taxes to the people.
What specific issues is the MEA concentrating on at present?
The MEA has been acting as an employer’s union since 1965, having been founded in 1958 by Anthony Miceli Farrugia. Over the years the membership has increased and one of my priorities is to encourage employers in Malta to become aware of the benefits of joining the MEA and expand our membership accordingly.
My new role involves the challenge of respecting the tradition of this association, while also ensuring we move with the times. Obviously that combination is a challenge. In this respect, I see myself as an agent of change.
But I must stress that I believe we have evolved, alongside the changes we have witnessed in industrial relations.
These changes are set to be formalised in the long-awaited revision of the Conditions of Employment Regulations Act.
This will be a momentous occasion for Maltese industry, which is widely viewed as currently being at a crossroads. What with these amendments and EU accession, it is a critical time for employers to be informed and involved, both of which the MEA can provide.
Do you think the expanded role of the Malta Council for Social and Economic Development is proving to be successful?
Although I was not directly involved in the pre-budget MCSED talks, the feedback I heard was positive.
The general line of thought was that any initiative providing a platform for the social partners to make their proposals is positive in itself.
Unfortunately, in the past, the unions and employers only tended to meet when there was some kind of conflict. It’s far more positive that we all meet for discussions and have the chance to make our own recommendations. And the MCSED is providing just the right meeting place in this respect.
However, it should be stressed that relations between employers and unions have, over the years, developed, with both sides having reached a stage of maturity.
As industrial relations have moved forward, I think it’s fair to say that the two sides no longer think of themselves as opponents. Inevitably there will sometimes be flare-ups, but today the emphasis is very much on partnership and we all aim, where possible, to find standpoints that are of mutual benefit.
It is no secret that there are cashflow problems in Malta. What do you think can be done to help this situation?
Malta’s liquidity problems boil down to various factors. One possibility is a drop in demand which slows down the circulation of money. When this happens, everyone tries to postpone making their payments, with the result that everyone gets caught up in the chain, whether they are a consumer, a retailer or a manufacturer or service provider.
But the issue is also related to the banks and the way they lend money. I think that today, banks are becoming more cautious about extending overdraft facilities. There have been some bitter experiences and hard lessons to be learned, such as the Price Club incident. Many of the suppliers caught up in this disaster are our members, so we have heard a number of stories of how hard hit these people were.
What lessons can we learn from the Price Club disaster?
I think there always has to be a limit to the extent to which you can grant credit. You can grant it to do business, but if you are simply giving more credit because you’re chasing your money and you are afraid you won’t get paid, disaster will follow.
Things will continue building up, as happened with the Price Club, and the whole venture will simply collapse.
One positive thing that came out of this crisis was the suppliers’ decision to form a creditors association. Hopefully this will provide them with a good network to try to ensure there isn’t a repetition of what happened.
Do you think that a satisfactory business ethic exists in Malta?
I wouldn’t describe the business community in Malta as unethical, although there are definitely things that can be improved.
I think many of us would like to see the number of people employed in the public sector brought down, government expenditure reduced and subsidies on what many of us regard as lame ducks tailored, to name a few problem areas.
But something worth remembering is that somehow, from an island that is overpopulated, with no natural resources, we manage to have a comparatively decent standard of living, which indicates that business is ticking over.
Yes we have problems, and yes there is some abuse, but I believe that when it comes to the crunch, the vast majority of people play their part.
We are currently inundated with buzzwords such as globalisation and restructuring. Do you believe that Malta is gearing up well enough to compete in the modern market place?
Although globalisation is definitely a buzzword today, my belief is that Malta has long existed in a globalised society in the sense that being a small economy, we have always been strongly influenced by external factors and therefore had to adapt to economic conditions beyond our shores.
In this respect, I wouldn’t describe globalisation as an entirely new concept for us. What we probably have to come to terms with is the idea that government intervention to protect various sectors of our economy has to come to an end. And the announcement in last week’s budget of the further dismantling of levies shows that this is the road ahead. But I believe there is a general acceptance that if we want to evolve as an economy, protection no longer provides any solutions.
This is where another buzzword comes in – restructuring.
As we gear up to compete in the new economy, there will inevitably be a decline in some sectors in which Malta is not in a position to take on other countries.
But we are free to seek out those areas in which we can gain an advantage for ourselves. For example, we can find niche areas of activity which have a great input of technology and capital and we can use our skills as a source of generating value added.
It is up to us to us to hunt down these opportunities and maximise them.