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A day after addressing parliament on Budget 2007, Sant says Labour’s principles will be the starting point for redressing Malta’s public finances
“Friends of friends” was one of the subjects of talk show host Georg Sapiano’s often exhausting deliberations with Jason Micallef, Labour’s secretary-general, on Thursday night. Micallef bumps into me minutes before meeting Alfred Sant at Labour’s headquarters in Hamrun that evening, where the dated furniture and ostentatious red fixtures still bring to mind Sant’s symbolic break with the past, when he moved the party away from the squalor of Cottonera, taking it into a new era of communication and onto the airwaves.
 That was new Labour 1992, the start of Sant’s meteoric ascent to a brief interregnum which rudely burst the Nationalist bubble so unexpectedly in 1996. His 22-month premiership today serves as cheap copy for the Nationalist press, the staid routine of regurgitating Sant’s two years in power. Since then he has withstood two electoral losses, losing the EU referendum which he still claims was not won by those voting in favour of membership, and a leadership challenge.
It’s no surprise that Sant should have been the subject of the extrapolations on Sapiano’s talk show – the Labour leader has soldiered on through myriad changes, secretary-generals, deserter MPs, and forgotten apparatchiks. Sant remains the constant, tenacious face of the new Labour he heralded sixteen years ago. Today, the miasma of disgruntlement with the Nationalist government makes his return to power a greater possibility. The critique of financial mismanagement is still the same; the radical nuances that enamoured certain quarters of civil society with him are gone. Divorce is clearly off the agenda. “There is no discussion on it,” he says, after having pioneered the first commission to look into the matter back in 1996. “Civil society has refrained from talking on these things… civil society must take the lead, and it hasn’t. You cannot encourage it. It has to work on its own,” Sant says, swirling his whisky glass.
Sant’s budget reaction on Wednesday was a typical dress-down of Gonzi’s financial management, interspersed with humorous put-downs where he joked about the PM’s exaltation of government achievements, and derided Brand Malta’s aspirations. One of his main declarations was his plan to halve the energy surcharge if Labour get elected, but critics have questioned how Sant was thinking of making up for the shortfall in revenue from the surcharge.
“Political responsibility,” Sant responds matter-of-factly, as if he were just imparting the most obvious of economic theories. “Political responsibility means starting from where we have to leave and arriving at the desired point.”
What does that mean? I ask him. “You balance out the books within the context of the politics you’re setting out. You base your politics on that goal, and you balance your books.”
And in turn, it also means cutting down government spending from the Nationalists’ prodigal figures. Sant, who warned upon his election to Prime Minister that the country had been riddled with financial “potholes”, his reference to the Lm132.8 million deficit left in 1996 by the outgoing Nationalist government, turns to how he will trim down excess spending.
“Such as consultancies, which Gonzi’s two years have cost some Lm8m-Lm9m. There are many areas to look into. There’s the consultancy over the Xaghra l-Hamra golf course, where hundreds of thousands were spent. The one million dollars spent on the CNN advert, the removal of MTA offices.”
Of course, cutting down the surcharge by half would require substantial millions. How would a general expenditure cut look like for Labour?
“We go from the other side. We start from principles – what are your principles in terms of budgeting? If you cap a source of revenue to cut down the surcharge, you start from there and work your way through,” is Sant’s answer, ostensibly saying Labour’s guarantee for lower energy bills is not as yet troubled by bottom-line concerns.
But how much would you quantify a general expenditure cut, again in the context of balancing out the books? “We’ve already pronounced ourselves on this. If you look at the way government’s expenditure has developed in these last years, if you exclude social expenditure and target cuts of between three to five per cent on recurrent expenditure, in the matter of three years we’ll have savings of Lm60m, at current spending levels. The dynamics of it, the way you have to look at it, is on the logic of a new budgeting system, a new budgeting policy. A part of this new policy is our proposal on the surcharge.”
But apart from capping revenue from VAT on fuels, Sant’s budget reaction also mentioned further tax cuts for business, particularly tourism. The principles, the Nationalist pundits are claiming, are not backed by clear indications from where shortfalls in revenue can be balanced out. “What you do is this: you assume, which is what you should do, that on the supply side, once you take these measures, you will be getting more income. Take the report by Prof. Joe Falzon, which clearly shows we are failing on the supply side, in terms of marketing, because we’re uncompetitive and we’re losing out, losing out on revenue, on volume, and on exports.”
As for Gonzi’s tax cuts, in some quarters derided for the lack of attention to what should have been a budget aimed at Brussels in the run-up to the euro, Sant reiterates his claim: “Too little, too late. Firstly they were needed. Secondly, they affected, rightly, the right people, that is the lower-middle to the middle class. But as I told Parliament, the tax cuts and the increase in the cost of living allowance is in most cases less than the inflation which government itself has prospected for this year, 3.3%. So in most cases, these people won’t be taking anything extra. At the same time, there are those who haven’t received any meaningful tax cut – why should they be disregarded?”
Sant says the big difference between Labour and the government is that whilst Gonzi is concentrating upon accounting concerns, which he says are dubious given that there is no provision for accruals – the booking of expenditure on deliveries, rather than when payment is made on a later stage – Labour is more credible because its priorities are stimulating the economy.
“In these circumstances, it means taking also measures to keep certain people, socially, above the water.”
Critics have also pointed out that halving the surcharge can only increase the demand for fuel, ignoring the reality of the international price of oil. “People are not suffering because they are consuming too much, but because they cannot keep up with water and electricity bills. That’s the issue. We meet people saying they are closing down their business because they cannot keep up with the energy bills. Even if we had to halve the surcharge, it would still be high.”
I ask him whether he agrees with higher taxation for particular sectors such as banking and telecoms firms. “Rather than answering that question, you can see the record of the Labour government. In 1998 we introduced a tax on banks’ profits and we were criticised by everyone,” he says, referring to a one-time only 15% windfall tax on gross profits, Lm4.5m in total.
Would he consider it again in a time when banks’ profits are notoriously high? “I don’t want to speculate, I don’t want to project decisions which are taken according to circumstances.”
Sant also mentioned how the arduous process at getting low-cost airlines to Malta had revealed the rigidity of a privatised Malta International Airport as it resisted giving in to demands for lower charges. He admits to his opposition to low-cost airlines before circumstances changed, he says, when European tourism became increasingly motored by the rise in low-cost airlines.
“You have to accept to that reality and react to it. The problem with the Nationalist government is that they did not respond to that reality. I don’t think they had an opinion on it, and things just drifted. Tourism needs a strategic plan that accepts this reality, which affords full space to Air Malta, but also to see how the Malta International Airport tackles such a situation. Other than that, MIA has been sold and privatised, and that has introduced rigidity in the way we react to this type of competition. Naturally, the private sector is there to defend its own interest and not the national interest.”
Would a Labour government consider taking back a greater share in MIA?
“A Labour government will not go in the context of nationalisation. That’s not on the cards. But certainly, one expects that MIA, even privatised, understands that part of its private interest, is also the national interest.”
His most marked of statements in the budget reaction was the unequivocal promise that Labour would continue the process to adopt the Euro currency by 2008. The declaration was akin to pulling the carpet from under the Nationalists’ feet, putting paid to months of speculation over Labour’s dubious stand on the single currency. Had industry given Labour some vibes to have a clearer stand on the issue?
“We had to clarify the issue, there was nothing new. I crossed the t’s and dotted the i’s. Obviously there’s the obligation for Malta to enter the euro, being EU members. In our view the date the government chose for the euro was a premature date. Since the government has decided that way, it has to be like so. So we decided not to go back on that decision. But since there is discussion on an election earmarked for next year, the year of euro conversion, we felt it was opportune for us to cross the t’s and dot the i’s. In the context of what the PN secretary-general said about a March election, a Labour government would continue with the process of adoption.”
His stand on pensions, as far as Labour’s game plan is concerned, which would suspend the Nationalist government’s impending reforms right up to 2010 while Labour seek consultation, once again, on their pension plans, presumably does not include changing the pensionable age of 65 proposed by the PN government before any future proposal a Labour government might enact.
“Any changes to the pensions law would happen as a result of decisions to be taken within Labour’s proposed plan… in 2010 the changes will be enacted, abolishing the previous amendments.”
Not one to address hypothetical scenarios, now that Sant had addressed the issue of euro adoption I ask him whether he’d consider a coalition with a third party, AD in this case, if no party achieves an absolute majority and the Green party secures a historic first seat. Sant chips in soon enough with his customary answer: “This is a truly hypothetical question which I never answer.”
But Sant refuses claims that Labour’s “friends of friends” accusation, his trademark slogan for the Nationalist government’s coterie of chairmen, consultants and appointees, has fallen foul of his own party’s predilection for trusted friends and businessmen. Their latest trade mission to Dubai, in which a Labour delegation composed of MPs Charles Buhagiar and Charles Mangion had a ‘chance encounter’ with the Smart City magnates, was also accompanied by entrepreneurs Denis Baldacchino, Ray Vella, Patrick Dalli, and Carmelo Penza.
Ray Vella had a hand in building Labour’s new headquarters in Hamrun and together with Denis Baldacchino, is a shareholder in Medina Construction Services and El-Ikhlas, whose directors include Charles Buhagiar MP. Patrick Dalli and Carmelo Penza, along with Baldacchino, had also formed Unita Group Holdings, a now defunct company which grouped their individual construction. And Dalli, the husband of Labour MP Helena Dalli, is also tied to Charles Mangion in the company Elcar Developments.
So didn’t such a rather incestuous association leave a bitter taste for those who had warmed up to Sant’s, justifiable, accusations of Nationalist patronage?
“What does this have to do with ‘friends of friends’, with all due respect? When we talk about these networks, we’re talking of contracts and other arrangements, and price fixing, and other appointments happening in Malta on the basis of private connections. We have led diverse fact-finding missions, to New York, Libya, and China. We went to Dubai basically to meet leaders there. Tecom didn’t even figure in the programme. Tecom itself proposed meeting up with the Labour delegation, and in that delegation only Labour members spoke. On the margins of that, we came up with the idea to have interested businessmen come up and conduct their own explorations in parallel with our mission. As a party we are interested in proposals on land reclamation and employment proposals in Dubai, and it was natural for these people to come up at their own expense.
“I can’t understand the concern. I find it to be puerile, really, that this thing is seen to be the same as when ‘friends of friends’ get contracts in Malta.”
I ask Sant whether he agrees with the legal regulation of political party financing, more transparency, declared donations, including state funding. “We already had proposals on how parties can get finances and limit contributions, but the Nationalist party didn’t agree with them, and they were buried.
We surely don’t have the same funds which the Nationalist party have, so on these grounds we should pay attention not to hinder one party’s chances of garnering its own funds. We already have made proposals on transparency of fund collections.”
Isn’t it in the public interest to know whether the businessmen which accompanied the Labour delegation to Dubai also finance the party? “I don’t have any objections to greater transparency on party finances.”
So big donations should be declared…
“I don’t think there should be big donors, that’s the first point. But should someone who gives Lm1,000 be publicised? There’s a difference between Lm1,000 and Lm100,000. On the other hand should parties be financed by the state? I think we should consider it but that’s my personal opinion. There are different models, such as the American one.”
Sant then says that nobody can say that big business is funding Labour. “Our major source of backing comes from our regular marathons, and they are all small donors giving Lm5 and Lm10.”
But your party machinery is too large to be financed solely by such small donations.
“Says you,” he responds.
So do Denis Baldacchino, Carmelo Penza, Ray Vella and Patrick Dalli finance the Labour Party?
“Have you asked Dr Gonzi if Caqnu finances his party? Have you asked him if Nazzarenu Vassallo finances his party? Have you asked him if Albert Mizzi finances the party?”
They are questions which should be asked, but what is your answer to my question.
“Don’t you see that I’m not going to tell you,” he says. “Certainly, your managing director, Roger de Giorgio, doesn’t finance the Labour party.”
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