Chamber wants six-month advance notice before withdrawal of energy subsidies

Marthese Portelli

Last Updated on Thursday, 12 October, 2023 at 11:19 am by Andre Camilleri

The  Malta Chamber of Commerce, Enterprise and Industry is asking the government for a six-month advance notice before the government reduces or removes the subsidies on energy, CEO Marthese Portelli said. She said that there is a lack of awareness about the true cost of the energy crisis and climate change, which is impacting consumer behaviour.

The prices of electricity and fuel have been kept stable over the past years, and in particular since the start of the war in Ukraine, as the government aimed to keep inflation as low as possible. The rising cost of products and services in the past two years has raised inflation up to unprecedented levels, with the government’s argument being that if the price of energy goes up too, then inflation would sky-rocket even higher. But this subsidisation, one day, has to stop, and the European Commission is already pushing the government to take this decision.

In a wide-ranging interview with this media house, parts of which were published on Sunday and Monday, Portelli was asked about the impact of gradually removing energy subsidies. The interview dealt with various aspects regarding the Chamber’s proposals before the government presents its budget for 2024. The Chamber has presented 250 proposals for the government’s consideration. “Real-time data on consumption patterns, tariff bands and real-time cost, supplemented by data analytics, can help service users control their energy use and reduce consumption,” Portelli said.

“Businesses and people are not aware of the real price of energy, since it is being heavily subsidised. The reality is that we cannot keep depending on blanket subsidies for everyone forever.  Such subsidies promote inefficient energy consumption at unrealistically low prices and hinder the allocation of financial assistance to those struggling to afford necessities. In our pre-budget proposals, we are insisting that subsidies need to be directed to businesses that are economically viable and that are investing in energy efficient solutions, particularly given that as a country we need to attain the green targets that we have committed to,” she said.

She explained that the Chamber believes that the distribution network should be made accessible to other operators after 2027, as there is the possibility of alternative energy sources. Without such liberalisation, private companies could have wind turbines or solar farms but are unable to use the energy they generate except for feeding the national grid at a predetermined price.

She said that the country needs a substantially large investment in the distribution network to ensure reliable energy supply and operational efficiency, particularly to adequately support the country’s transition towards greener energy and mobility targets. “Key upgrades need to be completed by summer 2024. A modernised grid will enhance energy efficiency and have lower maintenance costs. It should also prevent blackouts, thereby supporting commercial operations and improving competitiveness,” Portelli said.

“We also have a number of proposals which will help to accelerate faster towards the green transition. These benefit both businesses and domestic households,” Portelli said.

One of them, which is already being implemented in some other member states, is zero taxation on the installation and procurement of photovoltaic panels. Another proposal incentivises consumers to replace appliances that are inefficient by getting a reduced VAT on these purchases in a tiered approach where the highest energy rating receives the highest VAT reduction.

“We need to stop depending on government subsidies for everything. Everyone needs to do their part to try and be sustainable. Ultimately, the subsidy the government is forking out is coming from taxes collected from businesses and people and it would make more sense to invest that money in systems that help better our quality of life,” Portelli added.

One subject that always attracts attention when the budget is presented is the Cost of Living Adjustment, by which salaries are raised depending on the inflation registered in the previous year. For 2023, the weekly increase was €9.90 per week, and given that inflation was again high this year, the wage increase for 2024 is likely to be around €13 per week.

When, last year, it became clear that the COLA would have been the highest ever, there was talk of a possible revision of the mechanism which establishes the salary adjustment. But a year has passed and we are nowhere near such a revision.

The Chamber said that with the current COLA mechanism, it is very likely that inflation will remain high (significantly above the 2% target), making Malta’s exports, including manufactured goods, tourism and financial services, less competitive. Lower economic growth and higher wage costs would continue squeezing business margins. The Chamber also highlighted that employees are ending up paying more tax and moving into higher tax bands because of inflation and the resulting wage rises.

With respect to the forthcoming COLA, Portelli said that the Chamber is insisting that the COLA increase should not be taxed. The COLA is a means of compensation for inflation experienced, and this is why it should not be taxed. We are also saying that any planned tax refunds by cheque should be incorporated into the revised tax bands to eliminate the administrative burden of the issue of these cheques and to improve the monthly take-home-pay of employees. ”

The government should be looking at ways to improve the purchasing power of lower income groups while minimising increases in labour costs to slow down the wage-inflation spiral.

Portelli said that another sore point for the local domestic business community is corporate taxation. It is set at 35% and is one of the highest in Europe. However, there is bias which favours foreign companies. This creates an uneven playing field and leads to a competitive disadvantage for domestic businesses burdening the latter with higher tax rates which ultimately impacts their profitability and ability to invest and grow. The Chamber is proposing a revised tax structure which is conducive to a shift in our economic model to more value-added, by offering lower tax rates or targeted tax incentives for high-potential companies (both foreign and local companies) in specific sectors.

“The most important issues that need to be addressed are the areas which will ensure that we remain competitive and that help us to better our productivity,” Portelli said.

She said that the country’s heritage, culture and identity needs to be protected as these are crucial for the tourism industry to thrive.

“Our pre-budget document is not a simple wish-list. We have put a lot of thought in it to ensure that our proposals set out the direction that the country needs to take.” She explained that the Malta Chamber’s pre-budget proposals offer the framework needed in order to move away from the current economic model based on a well-being economy which is based on value added.  

Some of the Chamber’s proposals have been proposed before, and Portelli was asked if government truly listens to constituted bodies when they come up with their suggestions.

“The Chamber believes in constant dialogue and we hold regular meetings both with the government and the Opposition as well as with authorities, agencies and departments, to discuss challenges and explain the rationale behind our proposals, on behalf of the business community as a whole,” Portelli said. She said that admittedly, there are some entities and ministries that engage with the Chamber more than others.  

“We would like all members of Parliament and all policymakers to look at our pre-budget proposals and take them up. All of them are doable and will help to bring out the much required change in direction,” Portelli said. She closed off by saying that for a government to be successful, it needs to listen to the genuine business community and the genuine public, insisting on the words “genuine” and people who work in an ethical way.

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