What We Think
October 2, 2020
A future-ready budget
This year’s budget is no ordinary budget. With the human toll of COVID-19 on the increase, it is only to be expected that the economic cost will continue to increase in the coming months. 2021 will definitely be a delicate year as the virus continues acting as a tax on human activity and as a result companies will face additional pressures on their liquidity and solvency.
It is against this backdrop that the Government has to design its budget for the year ahead. With both an internal and external environment that remains volatile, uncertain, complex and ambiguous; policy-makers need to find the right balance between stimulating short-run activity and using that same stimulus as a lever for long-run goals.
Earlier this week, Seed launched Propose. Reflections for Malta’s budget for 2021, with our recommendations for the upcoming national budget. The annual budget is not just an accounting exercise whereby government projects its revenues and expenditures. It is above all, an economic policy tool that allows governments to allocate resources within a financial constraint. It allows the government to correct market failures and more importantly to direct present resources to future growth.
In this publication, we put forward our recommendations for the forthcoming national budget. Our focus is two-fold. First, we propose a short-term stimulus package to continue supporting real economic activity with our main measure being the gradual reduction in corporate tax for local businesses. Second, we anchor our proposals around a long-term vision for the island as we believe that this is the right time to start thinking about Malta’s society in 15 to 20 years’ time.
For the short-term package, we structured it around the five main roles Government has in an economy.
In the stabilisation role – government intervenes to ensure that the economy continues performing and generating wealth and in a time of economic crisis, like the present COVID-induced situation, government intervenes to reduce this impact. Our main proposal is the gradual reduction of the corporate tax rate to 25% over a period of 5 years. We believe that the time is ripe to support Maltese businesses who have consistently invested heavily in their enterprises and employees. We believe that such a reduction will spur investment and growth.
The allocative role describes the way Government allocates and gives signals on where and how to allocate resource. Here we proposed a host of initiatives aimed at allocating resources towards key productive elements. These include the transition to a greener economy, a digital society and the development of a proper investment around innovation, research and start-ups.
In the distributive role, governments exist to correct market failures to ensure that the vulnerable in the society are supported. Apart from proposing support to NGOs working in the social realm, we are calling for the continued reform of the pension system to enhance its affordability primarily by focusing on the second and third pillars of the pension reform.
The regulatory role is the legal arm of government and which focuses on creating the right conditions for business to thrive and for creating a society that is governed by the rule of law. Here, we are proposing the continued strengthening of good governance and institutions but is also proposing the introduction of a start-up visa in order to give start to a new ecosystem system in Malta
Finally, the administrative role focuses on the service delivery to the public through the civil service. Our proposals in this area focus on the need to improve its processes and procedures and for a complete business reengineering process to get underway with the required redeployment of resources.
We also proposed a much-needed long-term vision for the island. We are proposing a holistic framework that is built mainly around four main pillars being; to further internationalise the Maltese economy; to improve the skill-base of the workforce; to enable companies to innovate and to lead a digital transformation. However, we also focus on what to us are key enablers to this vision and these are; the need to ensure broad stakeholder participation; the launch and implementation of industry transformation maps and the investment in Malta’s urban and environmental infrastructure. We also argue for foundational elements, being values and quality of institutions, to be an integral part of this vision.
At Seed, we remain committed and focused on contributing to elevating the national debate. We believe in Malta’s potential and also in the importance of active citizenship by all, especially by the business class. By coming together, all stakeholders, we can truly thrive as a country, even in the face of such challenges. What we need is the courage to future-ready our economy.
This article was first published in the Times of Malta