Taking Stock

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Taking Stock 18 July 2024

IF those who preside over New Zealand’s economic and social problems believe that our country is facing unique problems they should get on their skates and come to Malta. Our problems are far from unique.

At a dinner I attended this week in Malta I listened to local leaders dissecting Malta’s problems and discussing the solutions.

For context, Malta is a former British colony, has fewer than 600,000 people, yet is growing its population well beyond the capacity of its infrastructure. It has a surging number of immigrants and an alarming shortage of labour in necessary sectors.

Its people do not like the consequential stress. Does this sound familiar?

Property prices have risen sharply, with new developments fed by low debt costs and unshakeable confidence in the sustainability of growing living standards. Its outstanding health sector is under pressure, resulting in the privatisation of emergency services.

Its long-term Labour government is alleged to have allowed a new era of “hidden commissions” and is scrutinised by a grumpy opposition and media.

The population numbers are telling.

In line with trends in other wealthy countries, Malta’s reproduction rates have collapsed to barely one child per woman after decades when that number well exceeded three.

People live longer. The population grows as the younger generations move into well-paid jobs in vibrant sectors like technology, abandoning their previous roles in health, aged care and, most of all, tourism.

Malta’s generous social services, its peerless weather, its low levels of crime and the ease of getting paid work lures large numbers from countries including Albania, Romania, Italy, India, Nepal and Egypt.

The Maltese, boosted by an excellent education system (with no problems of non-attendance), line up careers in software, engineering, medicine and in the professional sectors, in which the demand leads to relatively high salaries.

As a strategy, Malta has enticed major global professional companies to shift specialist tasks to the sunny islands. One imagines the lifestyle in Malta is somewhat more agreeable than almost anywhere, certainly anywhere I have visited often.

A leader in the software sector told me at dinner that salaries in software development have doubled in the past two years. He now recruits in Egypt, where skilled people are available at much less than half price.

Malta’s population is ageing. Carers are in great shortage. Care is provided by both the private and public sector.

We visited a relative in a care facility. To be polite, the facility and its range of activities for its residents would rank as a two out of 10, if any Ryman facility was ranked a 10.

Yet the weekly fee was similar.

One would be displaying nastiness if one expressed the hope that the haughty bureaucrats in NZ who criticise our care standards should one day be sentenced to a year of living in care facilities in Malta. Yet it would be a fitting punishment for the amount of unadulterated rubbish such people spout, never having taken the risk of working in the private sector, let alone creating a service.

Unsurprisingly the carers in Malta are mostly immigrants.

The population growth is challenging. The forecasts are that Malta will grow by another 30% in the next five years, having had an estimated 40% increase in the past decade.

Remember Malta comprises 300sq kilometres, almost exactly the size of the exploration licence owned by Santana Minerals in Bendigo, Central Otago. Malta’s infrastructure is stretched.

In the month of July this year the incoming number of tourists will be close to one million, meaning a country that just a few years ago accommodated 500,000 tourists will have its infrastructure in July tested by 1.5 million people.

Imagine how stressed NZ would be if we had equivalent tourist arrivals, more than doubling our population in the summer months.

How would our electricity supply cope? What would be the effect on our sewerage plants, roads, rental car fleet, hotels, airports, inter-island ferries, restaurants and hospitals. Those seem like rhetorical questions.

Malta’s growth has followed a strategy of lifting salaries to retain its highly educated people. The strategy has worked. Wages have trebled in the past decade in many sectors.

Malta has also targeted wealthy Europeans, selling its residency for a million Euros and imposing other conditions, such as building houses and creating employment.

This focus on money has inevitably uncovered weak and greedy people who cheat. Politicians and property market people have been caught cheating, though, ironically, in one political swindle, the country received a great payback. In that case a tiny number of politicians allegedly accepted bribes to switch contracts with its supplier of natural gas, which runs its grid.

Russia had the contract. Azerbaijan secretly negotiated to take the contract off Russia. All sorts of stories emerged, involving brown paper bags and perhaps Panama trusts.

Azerbaijan took over the contact in about 2018.

When Russia attacked Ukraine, the European Union sanctioned all Russian gas.

Had Malta not changed supplier it would have had to play the European game of cheating by re-labelling Russian gas to avoid the sanction. Austria will today still be watching large numbers of gas canisters arriving each day from “Azerbaijan”, though Austria would struggle to keep a straight face if asked to reconcile the quantities received with the export capacity of Azerbaijan.

Malta’s property sector has boomed, bringing with the boom all sorts of rumours about the sales processes, the consenting processes, and strange exemptions.

Yet the result is magnificent. Buildings unfit for purpose, usually through decay, have been bulldozed, replaced by splendid hotels, apartments and snazzy shopping centres. One imagines Malta has no earthquake concerns because buildings seem to be built quickly and to budget.

Most of the construction labour is imported, North Africa a supplier of large numbers, the workers often escaping from genocide or misery, sometimes in tiny boats.

None of this hectic growth seems to alter the languid lifestyle of tourists, for whom the sea and the 4000-year-old history are attractions.

To be fair many of the decisions of recent governments, of both colours, have been pragmatic and successful. For example:

1. Rental property owners have the right to act independently, setting their own rents as they like and creating short-term leases. These landlords pay a hefty capital gains tax.

BUT those who offer 20-year leases and lift rents only by the amount set by the government pay no capital gains tax. The vast majority are in the second group.

2. Students pursuing relevant degrees (medicine, mechanics, engineering, construction, healthcare, technology, software, arts) are paid to attend university in return for a bonded period of work in Malta.

BUT those who pursue degrees in knucklebones will pay their own fees.

3. Pensions are calculated by paying a percentage of the average wages earned in the years leading to retirement. This somewhat removes any incentive to understate income to avoid tax. Those on lower pensions are provided with subsidised rates, electricity and petrol.

4. The government pays the private sector for emergency hospital services.

5. Government debt is around 55% of GDP, a much lower percentage than is common anywhere, let alone in the EU where large countries have twice as much debt, relatively. As a habit Maltese people are not big users of debt, credit cards or Pay As You Go. They are pretty canny about finding lower prices.

So Malta is in a period of transition.

It has been in the EU for 20 years and is a vastly different country from that which I first visited in 1976 when it had just become a republic, was run by Dom Mintoff, and was arranging long-term oil discounts with Libya, the discounts offset by a promise not to drill for oil in the elephant oilfield that reached from Libya’s waters into Malta’s.

In 1976 wages were pitifully low, the Catholic Church dominated life and the relics of British Trade Union practices prevailed. Facilities for tourists then were modest.

The country today is based on the excellent fundamentals of its British coloniser but has none of the “entitlement” culture that so undermines Britain. Malta retains ample energy and ambition, fuelled by its aspirational younger people.

New Zealand would be wise to send its public sector leaders to Malta to discover how to design and execute progressively higher standards.

Visiting New Zealanders might also get a heads-up on the risks of rapid change, coupled with pursuit of wealth, colliding with what some weak people will exploit, unfettered appetite for hidden “intermediation” fees, handed over in brown paper bags.

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ONE mistake Malta has not made has been to grow Crown agencies from which airheads can pontificate pompously on the lives of others.

There will be no agency in Malta telling retired people how they should or should not spend their own money.

I suspect Malta has culled from its 150 years of British colonisation a great deal of what have become contrivances to centralise power.

That is another lesson we might take from the sunny islands.

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ONE British experiment neither Malta nor New Zealand would wish to follow would be the privatisation of water.

The UK is now going through a farcical phase, watching its privatised water suppliers fail many of their obligations, with some, notably Thames Water, on the edge of bankruptcy.

Thames Water was unwisely sold to Macquarie decades ago, Macquarie being the Aussie equivalent of the unlovable US investment bank Goldman Sachs. The Aussies simply stripped Thames Water, extracting extravagant dividends, failing to maintain the infrastructure and generally adopting a Ned Kelly approach to the guileless Brits.

Thames Water today, privately-owned, has been so regularly fined and so stripped of reserves that it has advised it cannot meet its obligations. The UK water regulator, which failed to do its job, allows Thames Water to price its water to obtain a return of around 4.5% on the value of its assets.

Thames Water cannot attract debt or equity unless it receives a return of around 5.5%.

If our TAB would offer me 2:1 I would place my bet on Thames Water being returned to public ownership within the next year.

The Crown would then spend hundreds of millions performing the maintenance that its private owners had neglected to undertake, preferring to allocate the depreciation account to dividends.

Why do the names of Tranz Rail and Fay Richwhite come to mind?

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