Businesses must move with the times

If entrepreneurs make the most of new opportunities and release themselves totally from the protectionist mentality, they have every chance of succeeding in the new economy, Parliamentary Secretary George Hyzler tells Miriam Dunn

Are you concerned about the country’s economic problems and should the government be doing more to tackle them?

It is a politician’s duty to be ‘concerned’ and it is his duty to address such problems.

Most of the economic problems we face today are the direct consequence of an economic system that prevailed prior to 1987. We often tend to undervalue the significance of the transformation that has taken place since then. The economy has moved from one that was state-controlled to one that is market driven.

We have also had to invest heavily in infrastructure to compensate for the absolute lack of investment that existed prior to 1987, and we have had to practically revolutionise our legal regime to allow it to meet the scenario. We have a fiscal deficit that has to be controlled, a culture of tax-evasion, an inflated public sector that requires restructuring, and work practices in certain sectors that threaten our competitive edge as well as the very viability of some important enterprises.

Control measures come at a cost. So in answer to the question of whether the government is doing enough to tackle these problems I would reply that doing more than we are doing at a quicker pace could aggravate the problem.

Are you satisfied with the rate that Malta’s businesses are gearing up to restructure for the new economy and if not what else would you like to see being done?

Business has become increasingly sophisticated and requiring new skills. Staying in business is in itself a feat in today’s competitive environment. Today’s businesses, however, would do well to recognise the new challenges of the market as opportunities. They simply cannot expect to do business tomorrow as their father did yesterday.

We are fortunate to have a population that has an extraordinary ability to adapt to new skills, and we have institutions that are providing the necessary training. If one looks at what is taking place at the University, the Malta Financial Services Centre, the Malta Stock Exchange, the Malta Arbitration Centre and at Middle Sea Insurance, MCAST and other ICT Academiae, for example, one will immediately appreciate the transformation that is taking place.

Our participation in the European Union 5th Framework Programme will contribute to the development of new skills to meet new business opportunities. In the film industry sector, which we have identified as one with enormous potential, we are in the process of launching a series of courses intended to increase the pool of local resources in the industry to meet the increased demand.

But ultimately it is all a question of attitude. Our inward-looking entrepreneur must respond to the realities of a liberalised market. For instance I would have expected a greater degree of co-operation between existing established businesses, possibly in the form of mergers, that would allow them to strengthen their position not only in the local market to face competition, but more importantly internationally.

My belief is that our businesses will do well once they detach themselves totally from their protectionist mentality and go in search of new markets. Quite frankly they have no choice. The European Union will provide them with new opportunities in this regard.What do you believe to be the answer to Malta’s current liquidity problems?

We have been brought up on a diet of unpaid dues, especially to government entities. Arrears of income tax, social security contributions telephone, water and electricity bills, have all contributed significantly to our national fiscal deficit and allowed businesses to exist in a false sense of stability. Increased efficiency in the collection of dues and taxes has of course challenged this attitude and to a certain extent contributed to what you describe as today’s liquidity problems.

In reality these are yesterday’s problems that have caught up with us. Another problem is that small businesses are at the mercy of larger companies who delay payments. A measure that will be adopted upon EU accession relates to the imposition of very high penalties for such delay. This should go a long way towards helping small businesses in their cashflow problems. I expect that a better credit management culture as well as new policies being adopted by the commercial banks should also help address this phenomenon.

Are you happy with the local business and work ethic and if not, what changes would you welcome?

Increased dialogue between the social partners should contribute to an improved work ethic.

We are living in an environment where consumer demands are justifiably high. Companies and its employees that do not respond to consumer expectations will fail. Workers’ representatives have a very important role to play in this regard. For instance unnecessary industrial action and the promotion of bad work practices will only serve to perpetuate a culture that the job is there for the employee.

Do you think the culture of tax evasion is changing in Malta, and if so, could the government suffer for the somewhat Draconian way that measures were introduced?

I do not agree that any measures were introduced in a draconian way. Admittedly those unaccustomed to paying taxes are disgruntled at government’s commitment to enforce compliance. There are also those who profess that tax evasion is good for the economy. This is of course unfair and disturbing from a social justice point of view.

We have a very expensive welfare system to maintain and a very costly public sector to support, despite very serious efforts to curb expenditure. I believe that the majority of the population will understand that if everyone pays his fair share the burden will be lighter all round. I believe that the electorate will not only appreciate but also expect, as of right, government’s efforts to enforce compliance. The failure of adequate enforcement in the past was translated into higher taxes paid by those who would or could not avoid or evade. The government will only suffer from an election point of view if it introduces taxes that the people consider unjust or if it fails to collect that which it is bound to collect.

The fact that we now have such a high rate of tax returns filed on time not only reflects greater efficiency from the Inland Revenue Department but is also indicative of a greater acceptance by the taxpayer. Our goal should be to eventually reduce even further the rates of income tax. This can only be achieved with increased efficiency and compliance.

Are you satisfied with the way that the levy removal process is proceeding and is the local market adapting to these changes?

Levies are a direct burden on consumers as they increase the cost of products. They were intended as a temporary and transitory measure to allow our local manufacturing industry to restructure and shape up to face a liberalised market.

Allowed to remain, they would encourage complacency and inefficiency. The prices of products that were previously subject to levies have, of course, gone down, and new products have entered the market. This has brought tangible benefits to consumers by way of a wider choice of products and greater competition in terms of prices and quality.

In the agricultural sector, we have seen how, as from July, the price of poultry and eggs will go down.

Will the Maltese entrepreneur survive in the EU and what will determine this?

SMEs are core to the EU. Many are under the mistaken impression that the economy of the EU revolves around big corporations. Nothing could be further from the truth.

More than 95% of European companies are small or medium. In the last four years, the European Commission has given high priority to promoting SMEs and the fostering of a more entrepreneurial Europe. The SME dimension is now an integral part of Community policies and SMEs are key targets of many EU programmes. The number of local entrepreneurs that acknowledge the benefit from the EU is on the increase. I think that once our entrepreneurs appreciate the opportunities of doing business outside Malta they will soon adapt. They must recognise the obvious truth that there are greater opportunities in a market that is more than a thousand times larger than ours. They must also be conversant with legislation being introduced intended to afford them protection, such as the Competition Act, as well extensive legislation and regulations designed to ensure a reasonably level playing field.

Are you concerned that the poor performance of the PN at the local council elections and alleged discontent among Nationalist parliamentarians could jeopardise the party’s performance at the next general election and a positive referendum result?

The last rounds of local council elections have emphasised emphatically the Opposition’s ability to mobilise support more than any significant set back for the party in government.

I invite you to examine the voter turnout to appreciate Labour’s success in getting its voters to the polls whereas the PN has been unsuccessful in increasing its voter percentage turnout year in year out.

Nor do I fear any alleged discontent in the PN ranks. These are more perceived than actual. Every loyal member of the Nationalist Party wishes the best for our country and expresses his concern freely when he feels that there is room for improvement. However, I certainly have not heard of any major difference of opinion in matters of principle being implemented by government.

I think that the main difference between the political parties is one of vision. The Labour Party is feeling its way blindly across the political stage. The Nationalist Party, on the other hand, has the course it intends the country to follow mapped out in detail. EU membership will put us on course to a higher standard of living, as has been the case in other small member states. The truth of the matter is that one party knows where it is going the other does not. My conviction is that the electorate will want to know which way a country is heading.