Interview | Tuesday, 04 November 2008

A walk down memory lane

Former Finance Minister George Bonello Dupuis may be 80, but he is still as lucid as it gets. He talks to David Darmanin on how budget practices have changed drastically since his days

George Bonello Dupuis was lucky to have been taxman at a time when he could afford being Father Christmas. Getting elected in 1987, to find government’s reserves bursting at the seams, changed his terms of reference from a minister expected to be a good saver to one expected to be a wise spender.
Without entering into the merits of whether or not a Lm31 million spend on the new airport terminal was wise, it has to be acknowledged that Bonello Dupuis invested in capital projects at a time when Malta needed a drastic economic reform. The work he covered in those five years has given him enough clout to be able to retire knowing that he has led an economic revolution.
Almost twenty years down the line, an 80-year-old Bonello Dupuis is fully aware of the extent of his achievement. So much so, he knows he can afford adopting somewhat of a paternalistic stance when referring to the current Finance Minister’s performance.
He has every right to be proud of his past, and he certainly is – although, with a contrasting tone of humility, he admits that he hasn’t been following national budgets as much as he used to.
“I haven’t been following the budget as closely as I used to lately. Following the budget would entail being on the ball and look at the government revenue streams closely, regularly and consistently,” he starts. “I used to monitor revenue very closely before – if not weekly at least monthly – both when I was minister as well as when I was in charge of banks for the nine years that followed, which is when local banks were strengthened.”
Like a true political tycoon of the eighties, he makes sure not to miss out on opportunities to remind the public of work he should have taken the credit for.
“Because of the work I did back then, banks in Malta haven’t suffered as much nowadays. It’s true, Bank of Valletta didn’t do too well but it was very difficult to anticipate that Lehman Brothers would encounter such problems. Otherwise I managed to convert banks from being lotto boots to being proper banks.”
Bonello Dupuis is expecting a very “green budget”, not only because this is the first one single-handedly laid out by Tonio Fenech, but also because, hours before the budget speech, he anticipated that there would be a number of measures related to the environment.
“The minister is saying that this is going to be a very green budget – and that there will be a lot of focus on the environment. But I don’t know exactly what he means,” he commented. “Will this mean that we will start recycling more? Or perhaps spend less on water and electricity? Will there be an announcement on wind farms? Will they discard the option to go solar? I don’t know. What I know is that the situation is not at all rosy at the moment. This is why I don’t think he should even consider widening the tax bands at the moment – I think we can wait until we get to benefit from that.”
In financial circumstances that are now completely opposed to where we were 20 years ago, Bonello Dupuis realises that you cannot possibly be anti-tax all the time.
What about investment in tourism? Is this the right time to spend?
“We have heard that there will be more investment in tourism – but we’re not building more hotels are we? There will be a higher spend on adverts, which is all good. But if the UK market is going dry because the British are now travelling within their own country – does this mean we are going to invest in new markets?
“The recession in the UK is expected to last at least two years – we cannot possibly bank on the British market until then. In the UK, people are facing unemployment, and with the credit crunch they no longer have much disposable income. The situation is very bleak,” he affirmed.
Going a trip through memory lane, the former Finance Minister explained how the way with which government approaches budget day has changed drastically since his days.
“Back then, the budget was a state secret to which only a small Ministry team had access prior to the budget speech. Not even the Prime Minister would know the full details. My staff used to be locked up for an entire week before the budget speech is read. I had a team of about 15 people sleeping at the office and working round the clock. I was the only one allowed to walk in and out of the office until then. Mind you, I had a small team. It was not like nowadays, where the secretary has a secretary and that secretary has another secretary and each secretary has a driver at his disposal. Each of my departments would provide me with its input and then I would choose what to allocate. Inland Revenue, duties and social security were the key areas in every budget, and they influenced one another in a cyclical pattern. For example, if I raised wages, I would know that people would be spending more and government would therefore be gaining more in tax,” he explained.
“There was no real pressure from cabinet members. They trusted me. There were lobbies of course. Every year, several associations and social partners would request a pre-budget meeting with me so they could lay their suggestions. The National Council of Women for example, would come every year. There were also the cigarette manufacturers who’d be scared of excise duties increasing. Then there was the General Workers’ Union and the UHM, the Council of Pensioners, lawyers, the Chamber of Commerce and other bodies. These all contributed in giving me pre-budget advice. I listened to every suggestion, chose what I liked and discarded what I did not. Nowadays the system is very different” …and rightly so.
“The only time I consulted the Prime Minister on a budget decision was when I decreased tax from 65 per cent to 35 per cent as I didn’t want to take responsibility for it alone. I remember this clearly. A member of my team, Edgar Wadge, had accompanied me to meet the Prime Minister that day. The Prime Minister was in a big hurry as he was on his way to the airport to travel to Rome. I remember telling him that an Indian consultant from the International Monetary Fund had suggested that the review on taxation could be done in three different ways – drop to 45 per cent, 40 per cent or 35 per cent. When the Prime Minister asked me what I thought, I went for the lowest option – the 35 per cent one. So he told me that it would be OK if I go down that route. As soon as I got the green light, I grabbed Edgar and rushed out as quickly as possible in case the PM would change his mind,” he recounted.
Bonello Dupuis was in charge of a thorough reform in the banking sector, at a time when Maltese culture was still undergoing the Bical trauma, when confidence in banks was very low. Also at this time, banks were used as a political tool, and this apparently led to some very serious abuses.
“My primary aim was to strengthen Maltese banks,” he said. “There were three banks those days – BOV, Mid-Med and Lombard. BOV was essentially a lotto boot. Mid-Med could not be touched that much because it had Barclay’s shares. Lombard was small. The government used to strip as much of their reserves as possible to increase revenue streams – leaving them to operate with very low liquidity. Lombard for example, had all its reserves taken at a certain point, and in 1987 BOV was so squeezed up that at one point it was not even in a position to invest Lm1 million in treasury bills redeemable in three months. This was a time when, if I remember correctly – there were Lm350 million in circulation and Lm315 deposited in banks. People did not trust banks. Nowadays, since we managed to revolutionise the system, things have evidently changed. The Zejtun BOV was known as the take-away – where everyone took loans left, right and centre. Imagine, out of its 1300 employees, 500 BOV staff were employed as maintenance officers – so you can imagine.”
The beauty of Bonello Dupuis’ term was that he could actually afford focusing on implementing an ideological strategy, as at no point was he constrained to take controversial decisions irking industry.
“Every budget I made was interpreted as an election budget – so I was lucky in that respect. I had faith in people, since we Maltese are very resilient, and generally respond well to respect. We learnt this from Dom Mintoff – who lost people’s respect because he was hard on them. We were the complete opposite - sweet on people,” he said.
Tonio Fenech does not seem to have followed this tradition though, and Bonello Dupuis acknowledges this.
“Tonio Fenech is a good technocrat. Maybe his biggest defect is that he hasn’t been to the university of life as much. As a finance minister, I was lucky because I was anti-tax – so I had people on my side,” he said.
Asked whether there was ever a point in his political career where he wished he was never given the finance portfolio, he answered: “Well, perhaps my biggest regret is that I was not allowed to sell all Mid Med shares to the public. Cabinet had opposed it since they wanted control over the banking sector, like Mintoff.”
Evidently, Bonello Dupuis is not a huge fan of Dom Mintoff. His next comparison between the former Socialist PM and Infrastructure Minister Austin Gatt seemed quite bizarre, albeit very bold. Asked about his feelings on the decision to move ahead with the introduction of new energy tariffs, Bonello Dupuis said: “Personally? I don’t think it should affect me. If I pay €20 instead of €10 for my electricity I will still remain where I am. However, I am concerned about the way they introduced it – which was clearly wrong. It was presented to social partners as a fait-accompli. This clearly enraged them, and they were right to be angry. The way this was treated was rather wrong – a la Mintoff, or should I say: a la Austin Gatt.”
Social partners are out of their wits because their European counterparts are being supported, if not fiscally, at least morally by their governments due to an exceptionally fragile economic situation. Asked about this reality, the former finance minister was empathatic to Tonio Fenech.
“The timing of our national budget is working against us. In the UK, they announce their budget in April – so they will have some more leeway to work things out until then. I don’t agree that we should let our deficit bloat, maybe we should try to endure the storm now, since when you start increasing the deficit you never stop,” he said.
Did he ever think there would be a tax on consumption?
“I wanted VAT, and I had in fact proposed its entry. For a society like ours, VAT is the fairest form of tax as you pay as much as you consume. It lets you choose not to pay tax if you don’t consume. Both cabinet and the Labour party had laughed at my proposition of incorporating VAT. I hadn’t managed to bring it in myself – but I did introduce the 10 per cent levy on restaurant meals – which everybody cheated on, but anyway,” he said.
And what about his views of subsidies?
“Any form of subsidisation disallows the forces of the market from working. Take water for example, it is worth much more than what we pay for – so there’s a lot of wastage. Look at bread in the past – when it was worth 5p for every rotolo loaf – everyone wasted bread. Nowadays the price reflects more closely its actual value – so there is much less wastage.”
But times have changed, it would be fair to guess that even if a loaf had to cost the equivalent of 5p nowadays, not many would be in a comfortable enough position to waste their coins away. True, we may have access to imported chocolate, but how financially comfortable are we nowadays? How do the 1986 and the 2008 economic models compare?
“Nowadays, the economy is in a very good state when compared to what we inherited in 1987. When we were elected we found a country in shambles – we found the result of a siege economy. Imagine – I remember once, before 1987, I had bought a radio-controlled car as a gift and it was confiscated because they said the frequencies would interfere with police radios. We couldn’t import anything, not even chocolate or a colour TV – or more importantly – computers. Do you remember the airport before 1987? There wasn’t even a carousel for luggage – just a tractor. When we were elected we had to start from scratch – we built up a country. You name it – the Reverse Osmosis plant, the Airport, the telephonic system, education… we spent big money on capital projects. When you look at the capital I invested as minister in the 1987-92 legislature, you will notice that I spent more money then than we are spending now – twenty years later, at much higher values. Lm480 million on capital projects in five years is no joke, he said.
When asked for one thing he would recommend Tonio Fenech before reading out his budget speech, Bonello Dupuis paused for a minute to deliberate: “My advice to Tonio Fenech would be to sail steady and wait for a further breeze. I would tell him not to worry – the breeze will come because the will of foreign governments can be seen.”

George Bonello Dupuis was interviewed yesterday morning, before the budget speech was read.



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04 November 2008

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