Tuesday 30 October 2012

Birds of same feather and collapsing cranes

High risk: A large part of the problem was the fact that the malfunction occurred at such a high pointPhoto: Darrin Zammit LupiWhat is the connection between the collapsed crane boom at Citigate project and the collapsing tower crane in the one57 luxury apartment 90 storey development in New York's Manhattan mid-town?

The connection is not just that the two incidents happened within a few hours of each other.  Also not only that thankfully no one was hurt in the incidents.   Not even that both accidents at work result from inadequate security and safety precautions especially the Manhattan incident where there was ample warning time to protect the equipment and machinery from the expected Sandy storm surge.

What I find particularly odd is that both projects are managed by the same Group - Lend Lease - formerly Bovis Lend Lease of UK.

What I find particularly revealing is not only the co-incidence of these two simultaneous incidents involving cranes but that Lend Lease has admitted just last April  to massive fraud regarding the claims they make on projects of the US government.   See link below:

construction_firm_bovis_lend_lease_admits to fraud.php

If they have the audacity to try to put a fast one past the US government just imagine what risk Maltese taxpayers are exposed to.
God only knows what the final bill of the City Gate project will amount to over and above the EUR 80 million estimate.  And don't forget this project was sold to Malita Investments, a company which is 30% owned by private shareholders, for a fixed price of EUR 80 million and government is committed to fund for its own account without commensurate benefit any excess in costs over and above the Euro 80 million.
Birds of same feather.......




Friday 26 October 2012

Circumstantial evidence

OLAF crucified a Commissioner based on circumstantial evidence.  OLAF have been very selective in their choice of circumstantial evidence as the best circumstantial evidence proving the innocence of the Commissioner is that OLAF themselves admitted that the process of the relevant directive was not in any way compromised and that none of the requests that Swedish Match were and are still lobbying for have been included in the draft directive.

There is strong circumstantial evidence that OLAF messed up this investigation.  Holding a press conference emphasising their conclusions that there is unambiguous circumstantial evidence against the Commissioner without publishing their report is just against natural justice.   You either publish the report and then hold a press conference where the press can ask questions based on the report and its findings or you do not publish and just shut up and let the people you reported to explain their decisions.

There is strong circumstantial evidence that the EU President wanted to abort the process of the TPD and sacrifice the Commissioner for it in the way he handled his demand for resignation which goes against the law of natural justice.

There is strong circumstantial evidence that the PN should be ashamed of having people like Silvio Zammit in its ranks, representing it as deputy mayor on the Sliema local council, in that he has not denied making atrocious demands to Swedish Match which go way way beyond any limit of fair compensation for normal lobbying services.

Circumstantial evidence, how many crimes have been committed in your name?

Thursday 25 October 2012

Laugh or cry?

I am not sure whether to laugh or cry.



Yesterday Hon Minister Tonio Fenech made this stark statement in front of Parliament's Public Accounts Committee, as reported in The Times:

"Finance Minister Tonio Fenech explained that the government had decided that St Luke’s should not revert to health services.

Rather, it was being emptied of all services and the government was preparing a development brief which considered this site as a national strategic asset which could be marketed abroad, say as a financial city or an educational city. Plans are still being prepared."
This is nothing short of a cover up for discarding a sensible and evident solution and opting for a much more expensive and unsuitable solution which helps friends before the seats of power have to be vacated.    It is a cover for a clear betrayal of the interests of Maltese taxpayers.

If the government truly wants to make plans for a financial city and/or education city it has two ready sites for such project:

The first and most obvious is the site on which the Marsa power station is sitting which will be cleared and be available for development once the power station is closed hopefully sooner rather than later.  And secondly there is the White Rocks project which again is crying out for development much better than the dreamt and forgetten sports complex project.

Pull the other leg Tonio! This is no laughing matter, better to cry.

Sunday 21 October 2012

Strange things happen

This article was published in the Malta Independent on Sunday  21 10 2012
The unofficial election campaign hardly feels any different from an official one and with good reason.   Government has lost its parliamentary majority, is keeping the chamber operating like a talking shop where no major decisions are brought to a vote and is groping in the dark for a solution to get the 2013 Budget through the House before December sets in.
Unless we are going for an official election campaign running in parallel with our Christmas shopping and carol singing, the latest feasible 2012 election date would be 1st December which means that parliament would have to be dissolved by 29th October.   If government plans to present a budget to act as platform for delivering the ‘see what you will miss if you don’t elect us’ message, this would mean that the budget will have to be read in parliament next week.
Risking presenting the Budget later in November could mean that we spend Christmas in hard election campaign as government would be in caretaker mode once parliament gets dissolved following failure of the parliamentary vote.
A political grinch may ruin our Christmas.   Budget presentation in the last week of October is not out of the ordinary.  The last five budget for 2008 – 2012 were read in parliament on 15th October 2007, 3rd November 2008, 9th November 2009, 25th October 2010, and 14th November 2011.    All showed a wish to wrap up the budget debate in parliament before December sets in and there is no reason why it should be different this time.   But strange things happen before an election.
Long expired collective agreement for public sector employees gets signed, car park concession gets renewed for the long term, car spaces are rented back at premium prices for a term which makes you wonder if we will still be using cars when it expires, and private hospitals gets rented out by the government with an option to buy and a commitment to upgrade and improve.
All these strange things have a common thread.   They all sacrifice the taxpayers’ interest in government’s quest for votes that might help it cling on to its long held tenure in power.   All these measures are tactically positive but strategically hopeless.
In the cacophony of an election campaign everything becomes tactical. Everything gets measured in terms of the impact on voters' psychology and ultimately how many votes such measures are going to gain or lose. The long term strategy is discarded by the way side and sacrificed to the political necessity of the here and now, rather than the strategic gains for a sustainable future.

There should be a strategy within which these tactical measures should fit. But if the strategy is what I think it should be these measures go diametrically against the strategic objectives we should be aiming for.

In health service we should be aiming for more active private sector participation in provisioning of health services so that the patient will have more competitive choice. We should be moving to launching a national health insurance scheme where everyone has to be covered with at least a minimum basic cover and where the premium is to be paid on a commercial basis, except that the premium should be deductible against taxable income and those who do not pay taxes should be fully refunded for the portion for which they do not benefit tax credit.

Mater Dei would then be offering commercial services chargeable to the national insurance company or to private insurance if the client opts for private insurance. But the client would have a real choice between public and private hospitals and Mater Dei will receive an efficiency boost of good management as it will have to operate like a commercial firm safeguarding its cost base and protecting its revenues.

The acquisition by government of St Philip's moves completely in the opposite direction. Rather than creating space for private sector health services we are extending the public sector into operations which hitherto were within the private sector domain. In the meantime those who opt for private sector health services get more dependent on a dominant supplier as through government intervention another private operator is permanently wiped off the board.
Government has no priority for proper strategy.   Its priority is for finding an immediate alternative to another winter of confusion at Mater Dei with congestion in the Emergency/Admittance department and patient beds in ward corridors.   Rather than admit total failure in planning and opt of re-opening more wards at St. Luke’s as a recovery hospital, it opts for a solution which delivers the least value for money to the taxpayer.
To add insult to injury, government insists on proceeding with the deal notwithstanding that a clear majority in parliament demands postponement until it is scrutinised by National Audit Office (NAO).  
When I was Chairman of Mid-Med Bank in 1997 – 1998, the Bank’s board had approved a deal to acquire an adjacent building to extend the Centru Ruzar Briffa.    I had personally insisted to send the deal for prior vetting by the NAO before taking a formal commitment.  Rather than admire the transparency I was criticised by PN quarters for favouring the seller who happened to be a ex-client of my earlier consultancy.   The deal was scuppered as the NAO took its time and early 1998 elections made it imprudent to conclude such a deal in an election campaign.   Time has proven how expedient it would have been for the Bank to proceed with the deal as our successors, after substantial and costly redevelopment on the same footprint, had to rent out part of the extension at premium rates.   
Now those who were critical of the deal in spite of it being sent for prior vetting of the NAO are turning things on their head and insist on paying first and auditing later even though their board of directors (parliament) is demanding otherwise.

The same applies for public sector collective agreement. This country needs to incentivise public sector employees to seek better and more productive fortunes in the private sector where we can get more value added per employee with which to grow our GDP to support our national debt and our social security programmes.

The strategy should therefore be to make public sector employment less attractive compared to private sector employment.

Public sector employees have security of tenure that private sector employees cannot even imagine and this security should be reflected in lower remuneration packages and inferior conditions of employment.

Yet public sector employees are regaled on election eve with a 6 year agreement with guaranteed annual increases over and above the normal increases within their scale, they are awarded more flexibility to work shorter hours, and they are allowed to enjoy their summer half days which are practically unheard of in the private sector.  And all this when most of the public sector continues to operate without any performance metrics where the lazy can take easy cover behind those who perform an honest full day's work without risk of retribution and certainly without risk of job loss, redundancy  or dismissal.
Strange things happen on the eve of an election.   Probably we have seen nothing yet.

Tuesday 16 October 2012

Where is the strategy?



In the cacophony of the on-going unofficial election campaign everything becomes tactical.

 

Everything gets measured in terms of the impact on voters' psychology and ultimately how many votes such measures are going to gain or lose. The long term strategy is discarded by the way side and sacrificed to the political necessity of the here and now rather than the strategic gains for a sustainable future.

 This is the frame I put around two measures which government announced this last week. I am referring to the agreement to rent with option to buy St Philip's Hospital and the Collective Agreement signed for public sector employees covering the 6 years from expiry of the last one in 2010 and which government has boasted would cost an additional Euro 190 million to finance.

Tactically these measures may make political sense although in case of the St Philip's issue government has probably under-estimated the grave risk of reputational damage given that this looks very much like a back-scratching arrangement among friends.

But where do such measures fit within the strategy? And ominously I would ask is there a strategy?   Has there ever been one?

There should be a strategy within which both measures should fit. But if the strategy is what I think it should be these measures go diametrically against the strategic objectives we should be aiming for.

In health service we should be aiming for more active private sector participation in provisioning of health services so that the patient will have more competitive choice. We should be moving to launching a national health insurance scheme where everyone has to be covered with at least a minimum basic cover and where the premium is to be paid on a commercial basis,  except that the premium paid should be tax deductible against income and those who do not pay taxes should be fully refunded for the portion for which they do not benefit tax credit.

Mater Dei would then be offering commercial services chargeable to the national insurance company or to private insurance if the client opts for private insurance. But the client would have a real choice between public and private hospitals and Mater Dei will receive an efficiency boost of good management as it will have to operate like a commercial firm safeguarding its cost base and protecting its revenues.

The acquisition by government of St Philip's moves completely in the opposite direction. Rather than creating space for private sector health services we are extending the public sector into operations which were within the private sector domain. In the meantime those who opt for private sector health services are more and more dependent on a single institution as another private supplier gets wiped off the board.

The same applies for public sector collective agreement. This country needs to incentivise public sector employees to seek better and more productive fortunes in the private sector where we can get more value added per employee with which to grow our GDP to support our national debt and our social security systems.

The strategy should therefore be to make public sector employment less attractive compared to private sector employment.

Public sector employees have security of tenure that private sector employees cannot even imagine and this security should be reflected in lower remuneration packages and inferior conditions of employment.

Yet public sector employees are regaled on election eve with a 6 year agreement with guaranteed annual increases over and above the normal increases within their scale, they are awarded more flexibility to work shorter hours, and they are allowed to enjoy their summer half days which are practically unheard of in the private sector. And this in spite of all government offices being air-conditioned.

And most of the public sector continues to operate without any performance metrics where the lazy can take easy cover behind those who perform a full day's work and this without risk of retribution and certainly without risk of job loss or dismissal.

Where is the strategy? As normally happens on election eve it has gone with the wind, if it was ever there.

 

Monday 15 October 2012

When the obvious is over-stated I get suspicious

The Prime Minister promised a responsible Budget.   This gets me suspicious.  All budgets should be responsible and there should be no need for government to state the obvious.


When they do,  it is a damn signal that the Budget will not be at all responsible but that government is trying to give it a responsibility brand before it is even unfolded.

It reminds me of when a few days before Bear Stearns was going under and had to be rescued by a J P Morgan takeover organised by the Federal Reserve in March 2008, the CEO of Bear Stearns Alan Schwartz had to come on TV to deny the rumours that Bear Stearns was losing funding and had a liquidity problem.   When I heard it I said to myself that this is the end of Bear Stearns.   If it had no liquidity problem it should have continued with its business as usual  honouring all deposit withdrawals as that is the only way to prove it had no liquidity problem.

The fact that Schwartz had to come on TV to deny what was pretty obvious to all, that Bear Stearns was going under,  only made matters worse and if anything was a seal of confirmation that it truly had liquidity problems.

Similarly the Prime Minister re-assuring us what should really need no reassuring, what is pretty ordinary course of business, which is what governments should be doing all the time, re-inforces suspicion that the Budget will be anything but responsible.

Given the context of highly suspicious deals going through ( rent with option to buy St Philip's; purchasing right to use 100 car spaces at MCP at well above market price ) at the last minute with the same characteristics and with the intent to avoid parliamentary scrutiny by an executive operating without parliamentary cover, than it is very very unlikely that the PN can present a responsible budget.

Say a prayer for taxpayers who irrespective of who wins the elections, will still have to foot the bill for government's desperate efforts to cling to power.

Striking oil on election eve

Haven't we heard all  before?  Now read it again!

Times report 15.10.2012 on oil off Malta

I can only repeat what I said before:  be careful what you wish for.

Unless we find oil in extra abundant quantities, its discovery could displace rather than increase economic activity.   It could induce us in a state of mind to get rich quick, forcing us to lose the urge to innovate and restructure.  In a few years' time we would find ourselves worse off as increased costs would make us uncompetitive in manufacturing and tourism and the oil illusion would have vanished.

No oil please, we are Maltese.

Wednesday 10 October 2012

How can this recession be brought to an end?


IMF GFSR summary Report cover

We are basically five years into this recession and there is nothing to indicate that we can get out of it any time soon.   If it lasts one more year, which clearly it will, the recession would have already lasted more than the second world war from the first shot on 1st September 1939  when Germany invaded Poland, to Japan's surrender after Hiroshima in August 1945.

What makes this recession different from any other in the post war period is that this is not a cyclical recession.  It is a balance sheet recession.   This is not the sort of recession where banks stay strong and through generous provision of cheap credit they stimulate investment and consumption to turn things around.   This recession was caused by excessive credit to sectors that went bad leaving a big hole in the balance sheet of banks that are no longer interested in lending money to anyone; they are more interested to run down their balance sheet to the size of the capital they have left.  

All this is leading to de-leveraging by all economic sectors at the same time causing crushing reduction in demand.   And without demand investment will shy away even if money can be borrowed cheaply, which is hardly the case.   Banks are de-leveraging to repair their balance sheets.  Sovereigns are de-leveraging as they have exhausted their credit status with the markets, especially following Greece's default.   Households are de-leveraging as they feel unsure about their future and are saving even on reduced earnings rather than spending on credit to keep up their lifestyles.  Businesses are building up their cash reserves as a safety precaution in case we double dip.

The IMF has warned the EU and the Eurozone in particular that their incremental approach to solving the Euro crisis is risking prolonging the recession for the whole world.   The EU is the largest trading bloc in the world and with the EU in recession,  the US and Asian economies cannot reach escape velocity to growth.   Without EU demand the other trading blocs will suffer losses on their international trade adding to uncertainty and shying away of investments.

In an important message to EU leaders ahead of a Brussels summit on deepening fiscal integration, banking union and bank recapitalisation next week, the IMF issued a stark warning that the lack of decisive action by European governments and institutions risked tipping the global economy into deeper crisis.
"Incremental policy making has been insufficient to fully allay market tensions, despite the recent market rally since end July," the report said. "Merely muddling through imposes increasingly higher costs, as the unchecked forces of fragmentation continue to gather speed and undermine the very foundations of the union – a common monetary policy, and economic and financial integration."
 
Fiscal integration and banking union are valid objectives but politics being what they are in the EU they cannot happen overnight.   They can be made to happen but the way the EU works it will take years of preparation, horse trading and shaping of public opinion about what these nice terms actually mean and how they will change the life of the average EU citizen.    But bank recapitalisation is something that has to happen and has to happen soon and need not be subjected to the usual machination of EU bureaucracy.
 
Without the wheels of credit creation working efficiently there can be no sustainable economic growth and monetary policy will remain sterile as the channels for transmission of the interest rate policy will remain blocked.    Banks must be recapitalised so that they can start acting as banks seeking to lend money profitably rather than obsessed on how to reduce their balance sheets.
 
Investors are not prepared to put new money in bank capital.  They have been burnt these last few years with harrowing equity losses and are not seeing a clear way of how any new investments in bank capital will be sufficiently profitable.   Sovereign are indebted up to their ears and can hardly be expected to borrow more to fund bank recapitalisation.   The EFSF/ESM mechanisms offer too small a buffer for the sort of recapitalisation that may be required and governments will have practical and political difficulty to pour more funds in these rescue mechanisms without igniting the ire of their home taxpayers.
 
That leaves only one source for the scale of bank recapitalisation required.  Monetisation of the ESM by the ECB either through giving a banking licence to the ESM or preferably by funding a special purpose vehicle to be managed by the ESM to be used exclusively for grand scale bank recapitalisation necessary after banks are forced to mark their investments and bad loans to a realistic market price.
 
Obviously the German Central Bank will consideration such monetisation as an economic heresy leading to future inflation.  They are wrong and should be over-ruled.   Such monetisation will not directly put purchasing power  into the economy.   The funds will go to clean up the banks and transfer ownership from the present shareholding set-up to ownership by the ESM.    But at least banks will have a healthy balance sheet and can start acting again as banks no more like zombies.
 
Once banks get well into credit creation process the the whole process can be reversed by privatisation of the ESM holdings in the banks which in the meantime would have re-discovered their profitability and would be giving a shot in the arm to economic growth through credit creation as opposed to the current de-leveraging.
 
And if we have to live for some time with inflation higher than 2%, may be 4% or 5% it would not be the end of the world.     As Mervyn King the governor of the Bank of England said today monetary policy alone cannot right all that is wrong in the economy and circumstances may arise where monetary policy will have, for the common good, to tolerate somewhat higher levels of inflation.  It is simply the choice of the lesser evil if the alternative is an endless recession.
 
The ECB and the EU governments should give heed to the IMF warnings and act fast.
 

Golden parking spaces

 

The highest asking price for a parking space in the most modern luxury development in the heart of Sliema is Euro 30500. This is bang in the centre next to all shopping complexes, bars restaurants and all the razzmatazz,  where parking is a 24 hour problem.

It is an outright purchase and it is the asking price for purchasing a single unit in the best place of the car park. If you go down one floor the price reduces to Euro 23,500, if you go down two floors it reduces to Euro 20,500 and if you go down to the bottom floor the price is Euro 18,000. These are asking prices which normally include at least 5% agency commission and can be negotiated down to some extent.

Obviously if the purchaser is interested to buy 100 spaces than the price could be negotiated down to a very considerable extent as that becomes a wholesale not a retail deal.

Now compare that to the Euro 32000 per unit that the government has agreed to pay for the right to use for 94 years (not outright purchase) 100 car parking spaces at the MCP car park in Floriana. We do not know whether these would be in the top floor or the bottom floor or whether they are spread all over the place. But even in the best hypothesis that these would all be in prime slots on the top floor the stark over-payment compared to the going commercial rate is evident.

This deals stinks.  The taxpayer is being short-changed as polticians and friends take one last drink for the road. Bear in mind that the MCP is not in the heart of Valletta, it is in Floriana outside Valletta where parking between 5 pm and 8 am is at a discount.   Or will the parking lines be gilt-edged?

And frankly why should government need 100 parking spaces at MCP?   If our transport system, especially to and from Valletta, should be working like clockwork why don't the pen pushers start using public transport and save the public coffers a handful, or two?   Even using taxis would be cheaper.


Tuesday 9 October 2012

I am simply lost


 

The news that government has on election eve signed a rental agreement with option to buy St Philip's Hospital simply loses the whole logic for which the huge investment in Mater Dei was made in the first place.

Follow this trail:
  • We had St Luke's Hospital with nearly 1000 beds but which was in desperate need of upgrade and renovation

  • Somewhere in the first PN administration 1987 - 1992 an agreement was signed with San Raffaele Hospital of Milan to build a research hospital to be near the university so that it could house the Medical School.

  • Along the way it was argued that operating two hospitals at St. Luke's and San Raffaele was a waste of resources as the medical staff could not cope by keeping a presence in both places.

  • Gradually the San Raffaele project morphed into a larger Mater Dei which however still has been configured with some 200 beds less than St Luke's.

  • Just a few years after Mater Dei was opened we have to make a substantial investment to build an Oncology Section next to Mater Dei and now we have to resort to making use of St Philip's.

  • Which brings us back to where we started that we still have two operate two hospitals not one.

  • Which means that we could have just as well renovated St Luke's and extending it as necessary by taking over the St Augustine friary and school ( for whom an alternative would have been provided in a much more decent place for their purpose) and kept San Raffaele as a small research hospital.

  • Which means that the huge investment made in Mater Dei, which is a considerable part of our outstanding national debt, was very  badly planned.

  • Which means that government now has to pay top rent and purchase price for St Philip's while St Luke's is largely falling in a state of disrepair.
These are not serious decisions taken by a buon pater familias.   These are decisions taken by money no problem attitude people.

Bendy buses and expensive parking slots

...to this

We are becoming the laughing stock of the world and we are setting text book examples of how not to do things.

London mayor Boris Johnson told the Conservative Party conference that:

" he kept his promise to Londoners to abolish the long buses ......the unpopular bendy-buses are now clogging up the streets of Malta"

This is the truth, the whole truth and nothing but the truth no matter how much lipstick the Ministry and Transport Malta try to put on pig's face.

And government paying EUR 32000 for the courtesy of using an MCP parking slot for the next 94 years but paying in advance for them over the first 10 years is already excessive payment with public funds to accommodate certain friends.   EUR32000 is a premium price for a parking slot anywhere in Malta and buying 100 of them with only time restricted right to use, rather than full ownership, is evidently paying over the top retail price rather than a discounted wholesale price.

But what is particularly insulting is that the government simultaneously extended the concession of the whole car park to the private operator on very generous terms.   This is a text case of how not to do things, of how to abuse taxpayers funds and how to lose money by selling low and buying high.

Hats off to Architect Mugliett for resigning from the Public Accounts Committee rather than sanction this rotten deal.   The Opposition representatives have a duty to explain why they went along with the government on this one.

Shame to The Times for trying to make a villain out of Mugliett's heroic act.  Shame also for censoring my comments on their electronic media criticising them for doing so.

Sunday 7 October 2012

Brain freeze

This article was published in the Malta Independent on Sunday 7th October 2012

The PN billboard showing Joseph Muscat holding an ice cube

and promoting the concept that a new Labour government would freeze the minimum wage reminds me of the prostitute that calls the virgin whore for wearing a skirt two inches above the knee.
No one person, organisation or entity has suggested that the Cost of Living Allowance (COLA) legally enforced annual increments should not continue to apply to the minimum wage.  Employers and unions disagree that the COLA should continue to apply across the whole spectrum of wage setting,  but they agree that it should continue to apply to the minimum wage.    The issue only arose because last spring Caritas had issued a study that in spite of being subjected to COLA, the minimum wage does not offer sufficient protection from poverty and should be increased by at least 16%.
I had written that this suggestion, while noble in its aim, suffers from a simplistic approach to a complex question and if adopted could suffer from the law of unintended consequences where measures intended to achieve an objective deliver an exactly opposite result.   Minimum wage earners are generally short of skills and vulnerable to redundancy risks if their cost increases disproportionately with economic growth.  Such redundancy risks generally come from the economic demands to outsource the low skill functions performed by minimum wage earners if the direct employment costs exceed the cost and flexibility of outsourcing. So there is a grave risk that any disproportionate increases to the minimum wage would lead to job losses rather than better revenues.
I argued that if minimum wage earners are to be really helped, the best way would be to facilitate their further training to achieve skills enhancement and thus open for them access to better jobs with better pay.   In those cases where particular situations makes such skill enhancement impossible, then it is up to the social security system to respond to ensure that those concerned stay above the poverty line.
Joseph Muscat has endorsed such thinking but never, absolutely never, suggested that COLA should no longer apply to the minimum wage.   Indeed, if COLA applies to all wages how can anyone even dare to think that it should stop applying to the minimum wage?   Everyone understood this including the mosquitoes that are taking away the pleasure of staying in the garden these hot autumn nights.
Even the PN must understand this and when they proclaim that Joseph Muscat will freeze the minimum wage they must be referring to the long practice of increasing the minimum wage only by COLA.    But the PN have been doing just that since they came to power in 1987.   So how can they accuse the opposition for continuing with a policy that has been standing under their rule for 25 years?
2012 is a year of important anniversaries.   Apart from the PN’s silver wedding to executive power in government ( bar for Alfred Sant’s 22 months short interlude) we are also commemorating the 50th anniversary of the Beatles first record (Love me do) and James Bond 007 first film (Sean Connery’s Dr. No).   But we should also be commemorating the 30th anniversary of the last time that the minimum wage threshold was raised in excess of the cost of living.  In the four years between end 1978 and 1982 the minimum wage was raised from Lm 17.38 ( € 40.48) to Lm 29.88 (€ 69.60).   This was a whopping increase of 72% to the minimum wage threshold over a short period of four years.   While many remember Mintoff economics by the wage freeze of the third Labour administration between 1982 and 1987 few remember the positives like the fact that during the second Labour administration between 1976 and 1981 the minimum wage was more than doubled from Lm 13.25 (€ 30.86) to Lm 26.88  (€62.61).
The last real increase to the minimum wage was that of 1982 when it was increase by Lm3 (€6.99) from Lm26.88 (€62.61)  to Lm29.88 (€69.60).   After that we had a wage freeze between 1983 and 1987 and gradual COLA or COLA-like ( COLA mechanism as such was introduced in 1990) every year since 1988.  Here is a table of some important sign-posts (election years) on the journey of the minimum wage over the last 36 years since 1976.
Year
Minimum wage €
% increase
1976
30.86

1982
69.60
125%
1987
69.60
0%
1992
82.99
19%
1996
98.72
19%
1998
106.29
8%
2003
123.76
16%
2008
142.39
15%
2012
158.11
11%


It should be noted that whilst in the second Labour administration of 1976 -1981 the minimum wage raced ahead by 125% it has taken the PN administrations since 1987, Sant interlude included, 25 years to achieve the same percentage increase i.e. 125% increase over the base of 1987 €69.60 equals €156.60 which is where the minimum wage currently stands.
It is therefore more than a bit rich for the PN to accuse Labour of plans to freeze the minimum wage.   If they infer that Labour will not allow COLA increases to minimum wage then they are inventing.  If they are inferring that Labour will not raise minimum wage beyond COLA than they have been doing just that for a whole generation.
If there is anyone suffering from freezes than it is more likely to be found in the PN stables as their election strategists seem to be suffering a brain freeze.   They are frozen in the 1980’s and are attempting to hinge their fortunes at the next elections by hammering that a new Labour government would be like Labour’s third administration between 1982-1987.   First they came out with a perfect replica from Margaret Thatcher’s 1979  election campaign billboard by proclaiming Labour won’t work, and now they are scaremongering with the minimum wage freeze enforced between 1983 – 1987.
The electorate today cares very little about what happened in the 1980’s.  The actors are different and the circumstances are different.    What Labour’s third administration of 1982 -1987 has in common with the current realities it is that a third consecutive tenure of power never works.   It did not work for Labour in the 80’s and it is certainly not working currently for the PN.
What the electorate of 2012 is interested in is how the PN are proposing to lead the country forward in unity when their internal strife is playing in full public view like a never ending reality show.   What the electorate of 2012 wants to know is for how long the Prime Minister is going to deny the rules of mathematics that he does not command a majority in parliament, that his government has lost its moral mandate to govern and that it is in the national interest to give the mandate back to the electorate through a general election this autumn.
If the PN are suffering a brain freeze the electorate is not.  Labour paid for their shortcomings between 1982 and 1987 through 6 electoral defeats out of 7 elections.  It is now the PN’s turn to settle their bill.

Wednesday 3 October 2012

A baby boomer goes on pension

Tomorrow I turn 61.   Another baby boomer goes on pension.   Note I have not said that another baby boomer retires, as I do not intend to, not just yet.

You should think I ought to feel good about it.   At best I say I have mixed feelings. 

On one side I have worked for nearly 44 years and contributed substantially to the national coffers through direct taxation, national insurance contribution and indirect consumption taxes.   So part of me feels a certain degree of entitlement to the state pension.

On the other hand I feel that I form part of a generational betrayal which the democratic force of the numbers of the baby boomers generation is imposing on the next ones.  Let me explain.

As the boom of babies born between 1945 and 1965, the decades after the end of WW II, reach pensionable age, the unfunded pension systems of most European states, including Malta, will feel the stress of larger number of claimants and the reducing number of contributors.   The ratio between pensioners and economically active contributors will shrink putting more burden on the upcoming generation to keep the system sustainable.  

The baby boomer generation has been extremely lucky.   We have lived through a period of peace and unprecedented economic development during which the standards of living have increased beyond anything previous generations could aspire.  Now the baby boomer generation feels entitled to retire and draw on the social security and public health service benefits for a period much longer than any actuary could have imagined when the contributory systems to such entitlement schemes were initially designed.

This is leaving a legacy of huge public debts and enormous future obligations to subsequent generations.  This is the result of short term economic management where development was based on consumption rather than investment, on credit rather than on savings, leading the baby boomer generation to benefit from higher entitlements and lower taxes even during their economically active age.

Furthermore baby boomers benefited from rising asset prices.   The property homes they bought with pennies are now worth tens of thousands.    Their savings in financial assets have also grown, provided they were carefully managed.

The younger generations now have to take care of the deficit being left as legacy which cannot even be reduced through privatisation revenues as whatever could be privatised has already been privatised.   So the younger generation face the prospect of higher taxes to keep the deficit from exploding beyond the point of no return ( somewhere between 90% and 100% of the GDP for most economies other than Japan) and has to suffer austerity measures including reduced entitlement benefits coupled with the need to show more flexibility in their work practices to bolster productivity.

I therefore feel somewhat ashamed that my baby boomer generation, unlike our predecessors who went through great sacrifices - including two world wars in the first half of the 20th century - is not leaving a better world to our successors.

In economic terms what I am going to say used to be considered as a heresy just a few years back.  But faced with a dire situation caused by the generational betrayal of the baby boomer generation may be it is worth considering that part of the re-balancing ought to be through toleration of higher inflation.  A few years of 5% inflation will do wonders to transfer wealth from the retiring baby boomer generation ( who at our age normally have interest bearing financial assets and no debts) to the economically active younger generation ( who at their age have real assets bought at high prices and financial debts).

May be in the end  it is the only way to avoid a general depression where all would be losers.