Social partners react to government’s convergence plan

The Maltese government presented an economic convergence programme to the EU Council in July 2004. A subsequent meeting of the tripartite Malta Council for Economic and Social Development gave the social partners the opportunity to discuss the programme.

The government presented a 'convergence programme ' to the European Commission in May 2004. This document sets out a framework for the consolidation of Malta's fiscal situation and for the containment and gradual reversal of its growth in debt levels for the period 2004-7.

The main thrust of the government’s economic policy is the achievement of sustainable growth and a high and stable level of employment, so as to attain a higher standard of living for all. As the government’s aim is to join the 'euro-zone' as quickly as possible (TN0403102S), it is striving to decrease Malta’s budgetary deficit well below the target set in the Economic and Monetary Union (EMU) Stability and Growth Pact by 2007. A deficit of 5.7% of gross domestic product (GDP) in 2002 rose to 9.7% in 2003, due to the restructuring of Malta Drydocks Corporation and Malta Shipbuilding during the year (MT0312102N).

The government’s target is to keep national debt below 60% of GDP and inflation and interest rates at close to the EU average. In pursuit of this aim, it is adopting a policy of curbing expenditure both within the government and in public sector organisations. As regards welfare provision, which accounts for a large share of government expenditure, a White Paper on pensions reform (MT0312101N) will be issued in summer 2004, followed by a White Paper on health reform at the beginning of 2005.

The Maltese Prime Minister, in his capacity as Minister of Finance, submitted the convergence programme during a meeting of the EU Council of Economic and Financial Affairs Ministers (ECOFIN) on 5 July 2004. The programme was compiled by the Ministry of Finance and incorporated inputs from various ministries, the Central Bank of Malta, the National Statistics Office and the National Commission for Welfare Reform. It also took into account feedback from European Union officials, the European Central Bank, and other Member States. However, the Maltese social partners were not consulted. The General Workers’ Union (GWU), Malta’s largest trade union (MT0404102F), protested vociferously and asked for an urgent meeting of the Malta Council for Economic and Social Development (MCESD), the country’s highest tripartite concertation body, to discuss the programme. A meeting was convened on 14 July 2004. Most of the social partners taking part in the meeting expressed their disapproval that the government had presented the convergence plan without previously discussing it with them.

Various political parties, social partner organisations and experts voiced their views on the convergence programme. The opposition Malta Labour Party and Alternattiva Demokratika (green) both claimed that government’s plans to reduce the budget deficit to 1.4% was overambitious and cannot be achieved without serious cuts in welfare. Some economists argued that the programme lacks political vision, as it is a set of 'mathematical milestones' derived from the Maastricht Treaty rather than from clear political leadership.

GWU warned that the government’s convergence programme should not put undue pressure on the Maltese workers and pensioners. People’s purchasing power is diminishing with every new tax or service charge introduced by the government, the union claims. GWU recommends the development of a strategy for job creation. The government’s proposal in the convergence plan to create 1,000 new jobs per year is viewed as being insufficiently optimistic.

The Malta Chamber of Small and Medium Enterprises (GRTU) claimed that its members are suffering due to unemployment and taxes. New investment is being discouraged by taxes.

The Union of United Workers (Union Haddiema Maghqudin, UHM) takes a more positive view of the programme and argues that it is designed for the benefit of workers. However, it maintains that that the absence of ministers at MCESD meetings does not help the Council to fulfil its true mission as a consultative and advisory body.

Dealing with Malta’s medium-term macroeconomic policy objectives, the convergence document is seen as a forerunner to the forthcoming 2005 state budget. During the July MCESD meeting, the social partners therefore asked the government to indicate by 5 November 2004 the detailed measures it intends to implement during 2005 to decrease the budget deficit.