Why should the police have a catering unit?

"The police force, which also falls under Dr Mallia’s political responsibility, provided food through its catering unit."

Many are questioning whether it was right and proper for the Minister to use the police and its catering unit to serve food and beverage at an official government function.

Presumably if as government claims this has saved expenses on the alternative of hiring a private catering contractor  and this has been done without prejudicing the level of resources that remained available for the police's normal core functions, one should applaud such initiative.   It helps to keep a lid on public expenditure.  Once a catering unit exists why not use it to the the full in the interest of getting maximum mileage from existing resources?

But to me the right questions to ask are:

• Should the police have a catering unit?   
• Would it provide economies if such non-core function is farmed out rather than keeping it inside the police force?   
• Does such a unit not distract from the focus that the Police should have on their core function of law and order?

These are the questions that should be asked.   It is time to thing strategically rather than complain about tactics.

Two tweaks on one hundred

On marking the first 100 days in office Prime Minister Muscat delivered two tweaks to the allocation of responsibilities among the Cabinet.

He transferred the portfolio of responsibilities related to Justice under the guard of Parliamentary Secretary Dr Owen Bonnici from the Ministry of Internal Security and Home Affairs to the Office of the Prime Minister. This looks like a small change but it shows that like a good manager, Muscat admits that even the best thought out plans need constant evaluation to ensure proper execution and that where changes are necessary these should be made without loss of time to keep the project on track towards meeting its objectives.

A somewhat bigger change was the appointment of PN ex Minister and ex EU Commissioner John Dalli as the Czar to overhaul the operations and management systems of Mater Dei.

Prime Minister Muscat has made efficient operations, including reduced waiting lists, at Mater Dei as one of his battlecries for this legislature, always in the context of a commitment to keep national health services under universal free entitlement.   The absence of clear deliverables showing improvements in the first 100 days and probably the better understanding of the enormity of the task involved has no doubt convinced both the Minister of Health Dr Godfrey Farrugia ( who as a family doctor has no experience or the management skills required to manage a hospital like Mater Dei) and the Prime Minister  that Mater Dei required something different.  It required a dedicated team under the guide of somebody like John Dalli who had already prepared plans for such purpose in the short time he was Minister responsible for health between 2008 and 2009 ( before he was kicked upstairs to Brussels by Lawrence Gonzi and his henchmen) and who has the management skills required to bring the necessary change to deliver on such ardent task.

My views about a long term solution for the challenges to the sustainability of our health service are well recorded.   The latest I wrote on this can be found through the link below:

http://alfred-mifsud.blogspot.com/2012/05/modern-titanics-5-sustainability-of.html

But as this involves removal f the universal free entitlement which goes against what the government has already committed itself to in this legislature, such ideas can only be implemented if one manages to organise cross party consensus for changes to be implemented in future legislatures.

To deliver improvements here and now one has to move along different tracks which respect the basic rules of economics i.e. that removal of bottlenecks can only be addressed by the joint action of increasing the supply and reducing the demand.

Of course this is easier said than done.   But something can and must be done.

Increasing the supply involves:

• making better use of the local health centres to ease the pressure on Mater Dei especially on the Emergency and Admittance Departments
• changing the way things are done at Mater Dei where many consultants merely work the mornings and dedicate afternoons and evenings to private practice to see ( and get paid from) patients, many of whom will eventually be treated at Mater Dei.
• introducing proper management systems for procurement, especially of medicines, to eliminate the chronic shortages that result regularly from the present system, or may be non-system, as whilst shortages regularly occur it seems that other medicines are over-ordered and go to waste as it expires unconsumed.

Reducing the demand:

Here one has to be careful.   Health service are not consumables that one normally indulges in for pleasure or satisfaction.   Given the political commitment to keep health services universally free, one cannot rely on the price mechanism to restrain demand, even if the demand for health services were perfectly elastic, which obviously it is not.

But there are other ways how to reduce demand and the market is already working on its own steam for this purpose as many people in the middle and higher strata of society have taken measures to procure private health insurance.

If health service is universally free why would people buy private health insurance rather than rely on the free national health service?  For these reasons:

• they do not like the quality of the free health services ( quality includes not just the medical treatment but the overall services, including admittance procedures, waiting lists, privacy in the hospital wards, quality of food, times for visits by relatives and friends)
• they do not trust that they will find such health services when they need them.
• they expect a privileged service which only market mechanisms can deliver.

Being a market based economy we should be thankful that people who can afford are taking such measures. The problems at Mater Dei would be worse if those who rely on private health services through their insurance cover were also to rely on public services.

So one way to reduce the demand on Mater Dei services is to stimulate more taxpayers to choose private health services by offering tax incentives for the premia they pay for private health insurance.   The State already offers such incentives for private education, including cultural activities, so the extension of this principle to private health insurance comes naturally.

But in so doing the government will have to take steps to ensure that those who benefit from tax credit on their private health insurance will no longer be eligible for free services from state hospitals once the bills for such services are claimable under their health insurance.  Currently there is a stupid system that Mater Dei offer such services universally free and insurance companies issue small cash payments to insured  as a thank you gesture for not using private health services.

There would remain an open question.     How can we have a system to motivate more middle class and upper society people, people who can afford to pay for private health insurance, to actually take out such insurance rather than continue to rely on public health services?   Given that private health insurers will probably have to raise their premia to account for the additional claims they would foot from insured being treated in state hospitals, and that the increase in such premia could possibly neutralise some or all of the tax benefit that private health insured would be entitled to,   how are we going to 'push' people who can afford to take private health insurance cover?

There is a very effective system for that.   All insured households will have the value of their saving by being uninsured added to their taxable income as deemed revenue.    To ensure that this does not negatively affect the lower strata of society who truly cannot afford such premia, the 15% tax threshold will be raised by the amount of such deemed revenue.    But those taxpayers whose taxable incomes exceeds the 15% threshold will start paying tax on the deemed revenue of the health insurance premia that they choose not to take out so that they remain a burden of the state even though they can afford not to.    So these taxpayers would quickly come to the conclusion that it is better to take out private health insurance and receive tax credit on the premia they pay rather than be taxed on the deemed income of the premia they choose not to pay.

In this way public health services would remain universally free but sustainable.  The pressure on Mater Dei would ease of as more taxpayers opt out for private services.  And those who really cannot afford private health insurance can get a better services at Mater Dei.   

Winners all round.

Declaration:   I am a director and investor in an insurance company which offers health insurance and might benefit from measures proposed.  I declare however that my views are not in any way conditioned by my directorship and investment in such insurance company.

Building bridges

What's all this fuss about the appointment of Lou Bondi' to a wide committee tasked to organise national festivities in 2014 which happens to be a particular year with round number anniversaries of national festivities which have long divided us?

It is the 50th anniversary of Independence which traditionally has been a blue feast.  It is the 40th anniversary of the Republic and the 35th anniversary of Freedom day which are traditionally red feasts.  It is the 95th anniversary of 'sette giugno' which has no particular colour.

If we are serious about delivering what we promised and in particular about making these feasts as truly national events that unite us, it is a must that the organising committee has to have exponents of the broad political spectrum.

Should Prime Minister Muscat have excluded Lou Bondi', in spite of his undoubted merits in such event organisation, purely because he comes from the other side of the political divide, and in particular because he has no doubt unfairly abused of his access to the national TV station to try to keep the PN in power?

Those who think so probably have never read the story of Nelson Mandela and don't appreciate the wisdom of keeping your enemies close to you and under your guard while praying the Lord to protect you from your friends.

We need to build bridges to remove the political divides that has kept us back from exploiting our full potential.  The national festivities committee 2014 is a good place to start.   Lou Bondi' has offended the sentiments of all Labourites.   He has above all offended the sentiments and character of Prime Minister Muscat and his family.   It is time to put all this behind us and build bridges where the other side shows interest in meeting us half way.  Otherwise we use too much energy settling bills of the past rather than building well-being for the future.

These bridges are much more important than the pipe-dream of hard bridges to Gozo.

Gozo needs no hard bridges or under sea tunnels.   Apart from such projects being economically unfeasible they seem built on a false assumption that Gozo is too small to have a sustainable economy and needs easy access to the main island so that Gozitan residents can form part of the larger Maltese economy.  

Gozo needs economic bridges.   Gozo needs to be sustainable by having its own properties to render it economically sustainable without its residents being forced to travel to Malta to find a job, to go to university or to be treated in hospital.

Let's build economic bridges to make Gozo economically sustainable.  

The lure of politics and one hundred days

This article was published in The Malta Independent on Sunday - 16th June 2013

Problem solving requires treatment of both the substance and the optics of the matter: only after taking both into consideration can one devise a proper, fair and lasting solution.

The case of Franco Mercieca being given a partial and temporary exemption from the Cabinet Code of Ethics should be analysed accordingly. No one has made a case challenging Dr Mercieca’s honesty or his dedication to his profession and his patients. No one doubts his professional specialisation in particular branches of ophthalmology. No one has denied that a sudden withdrawal from his profession following his election to parliament and his appointment as a Parliamentary Secretary would have caused untold harm to patients who depended on his services.

So, in substance, the temporary exemption given to Dr Mercieca made sense. It still does – especially considering that ophthalmic surgeons are a rare species and failure to practice his profession regularly could make eventual resumption, when the political cycle eventually turns, very difficult if not impossible. The dexterity required to perform such delicate surgery could be easily lost and hard to regain.

The optics were harder to justify. Allowing a cabinet member to earn money from private practice presents substantial challenges for political justification. Even performing services free-of-charge in a state hospital is not a straightforward matter. Operations in state hospitals involve certain examples of bureaucracy that do not permit the easy transfer of patients normally seen in private hospitals, where commercial charges are charged to people who are prepared – and can afford – to pay in order to avoid queuing for state-provided services.

As the saying goes: justice must not only be done but must be seen to be done. Perception is as important as reality. It seems that the optics have won over the substance and Dr Mercieca has been constrained, given the pressure of media headlines over his case, to give up his private professional practice to focus on his new political duties. He is being allowed to perform limited unpaid surgical procedures in state hospitals.

Time will tell whether society will be better off through losing the ophthalmologist and gaining the politician rather than accepting a bit of both.

But I cannot help wondering about the lure of politics that forces a person like Dr Mercieca, at the peak of his career and making good money by serving his patients without all the pressure of headlines, to trade all that for a cabinet post where by comparison the remuneration is small change and the media pressure asphyxiating. 

Someone said that a political career, especially at a relatively young age, would lure fools, crooks or missionaries. Franco Mercieca is neither a fool nor a crook.

*     *          *          *

Next week will mark the first 100 days of Joseph Muscat’s government, following Labour’s landslide victory at the election on 9 March.

Considering that Labour has had no experience of executive power these last 15 years, and that for many Cabinet members, including the Prime Minister, this is their first time in the hot seat, my judgement is that the new administration has hit the ground running.

Obviously, those at both extremes of the political spectrum are disappointed – and they are showing it. Those on the PN side seem to have understood ‘Malta taghna lkoll’ to mean that everything will stay as it was. They complain that promises of meritocracy are not being observed in new appointments. Such claims show residual vestiges of arrogance from quarters that had presumed perpetual tenure in government.  

Meritocracy does not mean that publicly-appointed executives should stay in position if their performance is deemed acceptable. Rotation is important to ensure not only that executives do not get too comfortable in their post but also that they do not become blinded to defects by familiarity. There no doubt existed a significant crop of Labour-leaning executives who were blocked out of positions by the previous government in spite of their credentials. They can do as good a job or better than some politically appointed incumbents. ‘Malta taghna lkoll’ means that these people deserve their turn.

So far, most key posts: Commissioner of Police, chairmen of public companies and corporations, chairmen of ad hoc commissions, have been filled by people who not only carry the government’s trust but have unquestioned merits for the post.

In fact, complaints have emanated more strongly from Labour quarters who consider that merit is being given more weighting than trust or who expect their personal grievances to be resolved instantly without waiting for due process.   

Like a football referee criticised by both sides, the government must be doing a fairly good job with such appointments.

But appointments apart, government’s performance in its first hundred days is impressive and indicates a hands-on way of getting things done:

• It had the 2013 Budget approved practically instantly on installation, even though it inherited a deficit for 2012 that was much worse than had been indicated.
• In spite of re-entering the Excessive Deficit Procedure thanks to the high 2012 budget deficit above three per cent, it avoided being forced to make expenditure cuts austerity measures.
• It honoured the pledge to remove legal prescription on corruption involving people in politics, and this before executive decisions began being taken.
• Re-allocation was engineered of substantial EU funds for Master it!, which awards scholarships for post tertiary education.
• It immediately launched the project for a gas-fired power station and has already announced the first short list in a transparent manner.
• A Commission for reform of the justice system has been set up and has already published its first report for public consultation with a set of very interesting and revolutionary proposals to address a problem that has proved so impervious to all previous attempts.
• A clear message has been sent regarding the toleration of abuse (in the prison warders’ case)
• It has shown it is hands-on and that it proceeds from problem analysis, to decision-making and implementation in a logical way – as in the case of the reformed Global Residents Programme for the acquisition of property by non-EU residents and the re-location of Valletta’s Monti.

The main achievement of the government in these first one hundred days is that it has taken over the reins without causing disruption to the economic tempo. On the contrary, with the removal of the uncertainty that elections unavoidably bring, the new initiatives to kick-start the property market and the removal of some of the unnecessary bureaucracy, as well as some luck as the world economy seems to be performing better than expected and the euro crisis, if not resolved, is not brewing additional uncertainty, one feels that the economic momentum has already moved up a gear.

Moaning by Ministers about the mess purportedly inherited has been contained in order to avoid deflating economic optimism, even though in many cases better exposure would have been justified.

Tourism is doing well and should do better as yet another competing destination (Turkey) suffers internal strife not conducive to attracting peace-seeking holiday-makers. 

One hundred days are up. One thousand, seven hundred more to go. 

Washing the ECB dirty linen in a German court

BUBA yearning for its return?

Unless you are a monetary economist like yours truly, or at least unless you take active interest in the risks faced by the Euro monetary union in these turbulent times when five Euro area countries have had to be bailed out by the rest, you would probably think that what happens in Germany's Constitutional Court in Karlsruhe is irrelevant to you.

That would be a gravely wrong assumption.   The German Court is being asked to decide whether the ECB's decison to launch its OMT (Outright Monetary Transactions) programme was ultra-vires the ECB and breaches German law.

Those making the argument against the ECB are some extreme German exponents, politicians and economists, who view the European Union as a project to Germanise it.    But unbelievably the objectors include the German Central Bank - Deutsche Bundesbank  (BUBA)  - that is an integral part of the system of European Central Banks.

This is a typical case of washing the ECB's dirty linen in public, in full view of the financial world that is closely following the proceedings in Karlsruhe, knowing that if the Court were to decide that there is case for believing that the ECB has not acted within its terms of reference, it would practically cause great instability on financial markets, forcing countries in distress to be shut out of the financial markets and basically risking a total blow-up of the Euro Monetary System.

Why would BUBA take such a  drastic course of action when all Euro area governments, including the German government, have applauded the ECB for launching the OMT and have confirmed that according to them the ECB is acting within the confines of its statutory powers?

BUBA has a tendency to have a very narrow view of the world.   They view things from a strictly German perspective and have not taken on the board a European vocation. They continue to view the Euro as a strictly economic project rather than a political project as the rest of the world sees it.  They were against the Euro project from inception and have always insisted that the monetary union should be the end result of a fiscal and political union not a precursor or catalyst to it.  The Euro exists because the politicians over-ruled them.   But BUBA loses no opportunity to put spokes in the wheel even if in so doing it could jeopardise the Euro's own existence.

The fate of the Euro should not be decided by a German Court instigated by an unelected Central Bank.   It should be decided if anything by the German people who need to answer whether they are prepared to force their Central Bank to feel committed to decisions taken with collegiality by the ECB or prefer to preserve their independence by leaving the system.

In making such choice the German electorate would have to bear in mind that the risk of having to pay pro-rata for any potential losses incurred by the ECB in its operation to save the Euro, are more than made up by the great benefits Germany has received from being members of the Euro by way of enjoying a competitive exchange rate for their exports and low finance costs for their borrowing.

Somebody would have to explain to the German electorate how painful it would be if Germany were to be forced to re-adopt the Deutsche Mark which the BUBA evidently yearns for.

Tonio's excessive arrogance

The last person who should criticise Labour for being admitted to the Excessive Deficit Procedure by the EU Commission, is the former Minister of Finance Tonio Fenech:   

This for three clear reasons:

• Under his tenure Malta has been there twice before
• The new admittance was caused by the deficit of 3.3% of GDP in 2012 for which he was the responsible Budget Minister
• The Budget for 2013 which he claims has not convinced the EU Commission is largely the same budget he prepared and presented in parliament in November 2012 and voted for it in April 2013.

So you have to have some cheek, indeed excessive arrogance, for Tonio Fenech to argue the way he did in his opinion piece in the Sunday Times of today.  Especially the bit where he says:

the Edward Scicluna Budget plans a 2.7 per cent deficit, and not a 1.7 per cent deficit as planned in the Tonio Fenech Budget.

The Edward Scicluna Budget plans a 2.7% deficit being 1% higher than the Tonio Fenech Budget purely because the starting deficit position on 1st January 2013 was 1% higher than Tonio Fenech had projected it when presenting his 2013 Budget just 33 days earlier.   Tonio  Fenech had projected a 2.3% deficit for 2012 but it finished 3.3%.  Some much for his budget accuracy over a span of just 33 days.

And the following is a wicked half truth:

 However, the Government decid­ed to seriously reduce its revenue forecasts, not because of any significant downturn in economic activity, but in Edward Scicluna’s words, to be conservative and reflect projections made by the IMF and the Commission that on the economic activity front have consistently been more cautions, nevertheless with actual results surpassing their expectations.

In November 2012, 33 days before the end of the year Tonio Fenech had estimated that the revenue for 2012 was to be EUR 2868 million down from original projections of EUR 2961 million.  The actual revenue for 2012 in fact came in at EUR 2716 million, a full EUR 151 million less that the revised projection.

Given this performance who can blame Edward Scicluna for reducing the revenue forecast for 2013 from EUR 3126 million projected by Tonio Fenech's  original presentation to a more realistic EUR 3030 million which is still 15% above than the actual of 2012?

The EU still considered Edward Scicluna's downwardly revised figures as optimistic and advised Malta to realistically spread the adjustment to get below 3% over 2013 and 2014 rather than swallow the hit completely in 2013.   What makes Tonio Fenech think that the EU would have behaved differently with regards to his more optimistic figures?

When it comes to government budgeting there is pretty little any government can do in the first year to change the course of expenditure and revenue flows of the previous administration.   The EU Commission flexibly allowed Labour government to come within 3% deficit over a two year period, i.e by 2014, even though Labour committed itself to come in line by end 2013.

Has Tonio Fenech has not yet learned were excessive arrogance gets you?

Dynasties and reform

This article was published in The Malta Indpendent on Sundy - 02 June 2013

Commissioner Olli Rehn

The choices made by the PN delegates last weekend show that the dynasty culture is still alive and kicking within their Party. Electing a de Marco, a Fenech Adami and a Mifsud Bonnici to the top line formation looks dynastic.

One could argue that the new PN leader carries no such features and party inheritance-like appointments in the second and third line of authority do not really matter. They do. Dr Busuttil, as PN leader, has the odds stacked against him. He has to recover an electoral deficit of 35,000 votes and has to defy tradition where the electorate generally favours two-term governments. If Busuttil loses the next election it would be his second defeat. PN leaders rarely survive two successive defeats. Not even Borg Olivier did. Gonzi did not survive one. In such an eventuality, the dynasty looks set to prevail.

Reforms are what the EU Commission has recommended this week to most EU countries suffering economic instability or excessive deficits. This marks an evident shift from austerity to growth-oriented reforms. Recent statements from the Commission President that austerity policies had reached their practical limits of political acceptance set the scene for the change of strategy.

Unavoidably, Malta was re-admitted to the Excessive Deficit Procedure when the 2012 deficit again exceeded 3 per cent. It is the epitome of arrogance, a major cause of the PN defeat in the last election, to try to pin the excessive deficit that happened under their watch in 2012 on the new PL government. Arguing that the PL fudged the figures not only negates proven reality but insults the competence of the Permanent Secretariat at the Ministry of Finance, which is one of the few that survived the change of administration intact.

The new government asked to be permitted to come within 3 per cent during 2013. The Commission not only agreed but practically told the government to go slow on the adjustment and spread it over two years up to 2014. Contrary to when the bias was on austerity, the Commission demanded no expenditure cutbacks but made five specific recommendations for economic reform. They should be taken into consideration, even if not blindly adopted.

The first recommendation is not contentious and should find unqualified concurrence. Correcting the excessive deficit by 2014, keep pursuing neutral budget position by 2017 and achieving this mostly by enforcing tax compliance and fighting tax evasion to avoid the need for new taxation, has broad appeal. There is a further recommendation to reduce the debt bias of our corporate taxation. This ought to be disregarded. It does not take into account local realities, that most of our businesses are SMEs and micro organisations that do not have access to capital markets and rely on banks for external financing.

The second recommendation has several proposals regarding which both our political parties have drawn red lines. Accelerating and increasing the statutory retirement age and introducing an automatic link between retirement age and life expectancy is the sort of stuff that economists dream about. But from the political perspective, such measures are non-starters, certainly not in this legislature when the government manifesto carries specific pledges to the contrary. Other measures are more doable. Encouraging private pension savings, developing an active aging strategy, increasing access and reliance to primary health-care and improving the efficiency of public procurement procedures is what we have already been promised in Labour’s manifesto.

The same applies to the third set of recommendations. Reducing the number of education drop-outs at a young age, increasing the linkages between our education system and its relevance to the labour market, accelerating female participation in the labour market through the provision of child-care facilities and the promotion of flexible working arrangements could have been copied from Labour’s election programme.

Even the fourth recommendation is practically what Labour has promised us. Diversification of the energy mix and energy sources, the timely completion of the electricity link with the European mainland and the promotion of renewable energy, are all on the brief of Energy Minister Conrad Mizzi. The reduction of traffic emissions by making public transport the first choice for the majority of the population needs help from the other Mizzi in the Cabinet.

It is the fifth recommendation that needs some chewing upon. It concerns the stability of our banking sector and obviously draws a lot on the experience the Commission has had with the events in Cyprus.

It needs proper dissection and analysis. The recommendations are taken to refer to the five core domestic banks whose main activities are collecting deposits and granting loans to Maltese residents and who collectively hold assets equivalent to 200 per cent of the country’s GDP. In the in-depth review published by the Commission on 10 April, these five core banks are described as having “a rather conservative business model that relies mainly on resident deposits for their funding and have a low loan-to-deposit ratios, around 70 per cent. This combined with a stable deposit base, thanks to the high propensity to save of Maltese households, helped the core domestic banks cope with the financial crisis and the volatility on the international wholesale markets. The banks did not need government support nor did they resort to the ECB’s long-term refinancing operations to any significant degree to improve their liquidity”.

With such a certificate, which would be the envy of many other countries – even those that have not required bailouts – one is entitled to wonder why then the Commission is making recommendations for core Maltese banks to “strengthen the provision for loan-impairment losses… to mitigate potential risks arising from exposure to the real estate market”.

The reason for this is found in the report itself. “Since banks make provision against only the unsecured part of an exposure, the coverage ratio is relatively low at about 20 per cent (of the gross value of non-performing loans)”. In simple words, the Commission is telling banks not to rely on this security for recovery of non-performing loans, and to increase provisions more than the current 20 per cent cover.

In these turbulent days, one can never be over-cautious when it comes to protecting the stability of the financial system. We should desperately guard and be envious of what has saved us. Whilst most non-performing loans have solid security cover, advice to increase the provision coverage should not be dismissed lightly even if the Regulator would have to impose it on the operators and force them to moderate their dividend distribution policies until better coverage is achieved.

The fifth recommendation also includes a very relevant recommendation to “improve the overall efficiency of the judicial system, for example by reducing the time needed to resolve insolvency cases”. This criticism is more than fair.

Our bankruptcy laws are chronically out of date and desperately need up-dating so that banks can rely on quick resolution of cases of defaulting borrowers that can be re-organised and re-energised by Chapter 11 type of legislation. This forces debt write-downs or conversion into equity for businesses that are still feasible if re-organised with better financial gearing. For those business that are beyond repair, resolution through efficient bankruptcy proceedings is important for lending banks to make realistic reliance on their security and thus remove non-performing loans from their books following realisation of covering security.

No financial centre can thrive with mediaeval bankruptcy laws where litigation takes endless years to be resolved, as, for example, the ex-National Bank of Malta shareholders’ infamous case against the government.

Adopting the general spirit – if not the totality – of the recommended reforms is as important as correcting the excessive deficit.