In a little more than a week, Government will be revealing its fiscal policy and public budget related measures for 2021. Needless to say that in the present circumstances this Budget assumes an importance much higher than usual. I humbly, put forward the following proposals, based on what I see and face daily with various businesses I work with.
- Business Re-Engineering Consultancy Scheme: Following the so called mini-budget of last June, one economic regeneration measure which has not yet still seen the light of day, was that of the Business Re-Engineering Consultancy Scheme. This is URGENTLY needed as various businesses are faced with deep and profound need to change their business models and their internal operations and any financial assistance to help them go through such an exercise is more than welcome. This help is needed now, before it is too late.
- Boost Consumer Confidence: At EMCS we have been tracking Consumer Confidence in Malta for a long time. The latest updated Consumer Confidence Index for September 2020, indicates that the Consumer Confidence in September 2020 is still below levels registered in June/July 2020 when the mini-regeneration budget was announced as the advent of a 2nd wave of COVID-19 dampened consumer sentiment. Hence Government needs to sustain consumer sentiment as we are going to face a difficult winter.
- VAT Reduction: After Christmas 2020 business will face some very difficult months. A direct way to try to boost demand and consumer sentiment is to reduce the VAT rate. Government can consider to have a blanket VAT rate reduction or to have a more targeted VAT rate reduction for those economic sectors worst hit by the crisis brought about by the pandemic.
- More targeted help: Whilst many retail and catering businesses where badly hit across Malta, there are those that where even worse hit due to their location. A case in point are the retail outlets and catering establishments in Valletta. They suffered a double whammy as their clientele was made of tourists and locals working in Valletta. Tourists vanished and many locals are working from home. Such businesses need additional help and I would suggest targeting them with a higher level of wage supplement to avoid losing certain iconic businesses that have been with us for decades or centuries.
- Fine-tune assistance given so far: On other thing, I face constantly with my clients, is the issue that when businesses employ new staff to replace staff which have resigned and went to work elsewhere, the new staff employed would then not be covered by the wage supplement. This is effecting businesses very badly as it is extremely important for keeping staff at levels for best operational exigencies, but businesses are finding it difficult to re-employ persons to replace the employee that resigned knowing that they will have to fork out the full pay as the wage subsidy would be lost.
- Incentivise investments: Some are advocating the lowering of the corporate tax rate to incentivise investments. I am against that. For 2 reasons. First it would make it more difficult for government to recover lost revenues when the economy eventually picks up and secondly it is difficult to lower corporate tax and then increase it later on. I would clip fiscal incentives directly with investment by having any investment done by companies say in the years 2021 – 2023, deductable as a taxable expense immediately, rather than amortised or depreciated. That would give an immediate tax benefit linked with investment.
- From a cashflow to a capital problem: Government’s main focus until now was to aid in the cashflow problem that businesses faced overnight. Hence the postponement of having tax and VAT payments and the MDB loan where all intended to help the cashflow of businesses. However I fear that with the passage of time, certain businesses are now moving or will shortly be facing, a capital/balance sheet problem, as the losses they are incurring is eroding their capital base. Government needs to come with innovative solutions on this. In my mind, rather than have the MDB go through the commercials banks, Government has to consider direct action and intervention by the MDB as the financial injection needed here would be done on parameters we never used or had before.