In their quest to recoup losses faced during the three-month lockdown, operators let a sigh of relief when Hon Robert Abela, the prime minister announced an easing of regulations to allow restaurants to open under certain conditions.
The announcement of the fourth mini-budget is welcome. This is offering inter alia a cash injection of €34 million by way of €100 vouchers (five coupons of €20 each distributed free to residents over 16 years of age) to be spent in catering, hotels, and certain shops.
This announcement has caught the imagination of a number of operators such that the Malta Tourism Authority promptly reported to the press that it had received some 860 calls mostly from those within the hospitality sector.
Last month, a number of restauranteurs called to ask about various aspects of the protocols and what they need to do to become fully compliant in the shortest possible timeframe. The Chamber of Commerce insisted that businesses should be given a clear and safe direction on the way forward in a “responsible and structured manner”.
In its own words, the Chamber remarked that “At the same time the country ought to continue to give due weight to the nation’s economic needs as well as the physical and mental health of our people”. In plain words, the conditions imposed for restaurants and cafeterias to open varies for indoor and outside catering. For indoor dining, there has to be a reduction in covers such that the maximum number of diners will be one for every four square meter with a minimum distance between seatings of two meters.
This condition will reduce risks regarding the transmission of infection but of course, reduces the number of covers by half. Tables have to be limited to groups of not more than six diners from the same household.
Other conditions include the disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets. For outdoor dining (which is the preferred option) again, the same conditions for distance and family groups apply and no smoking is allowed. No doubt, restaurateurs typically queried details of the protocols and what they need to do to comply with inspections by MTA to certify the 2100 eateries that accepted the conditions to start operations.
Certainly, state TV was lauding this as a triumph for common sense hoping that the chance to recoup part of the income forfeited in the past three months, will encourage more restaurant owners to accept to restart operations. MTA hoped this will encourage all restaurants and cafeterias to join in the scheme.
One should wait to see how profitable is the new scheme given that most probably due to reduced covers, the operational costs will be higher, while most expect the spending power of some diners to be subdued. The injection of cash vouchers may see the whole country throwing caution to the wind and indulge in celebrating “Imnarja” traditional feast by dining out. Certainly, the heavily reduced number of patrons (especially as no tourists) may render the operation non-viable unless menu prices reflect a hefty markup.
One may argue that having a soft opening is better than total closure of the business since chefs and the support staff can at least become active. No study has been announced by the authorities to guide restaurant owners whether it pays to accept the conditions for a partial opening and guide them on the cost of health insurance against the incidence of risks of infection from catering staff or diners.
On a positive note, Malta Enterprise stated that in a spirit of support for the hospitality sector it will continue to pay the wage supplement (albeit at a reduced rate) to next September. This is welcome news, but as far as the viability of the industry is concerned it is a stop-gap solution, and unless seat availability improves then it is certainly a critical time for restaurant owners. Why does a simple meal of a gourmet pizza, a glass of foreign wine, and an espresso cost more than €20?
A major issue is the cost of food which has gone up since the outbreak of Covid 19. Quoting, Eurostat Malta experienced the highest monthly increase in inflation across the EU last April. Inflation went up by 2.9% in April when compared to March. The government preferred an immediate solution so rather than reduce tax, it opted to issue cash vouchers (a stop-gap measure).
A fair solution is to achieve parity in vat rates by reducing them to match those charged in other Med countries. This article explains how taxation of catering establishments (whether it is fast food or silver service) can be improved by lowering vat to 7%. One hopes it will result in cheaper meals. This will match the lower rates charged by our competitors in the Med.
It is no secret to note Luxembourg charges only 3% on food. Another novelty is Greece. At the peak of the Greek financial crisis, in September 2011, the VAT rate for non-alcoholic restaurant sales increased from 13% to 23%, yet following pressure from the sector, the government was persuaded to reduce it to 13% in August 2013 for a two-year experimental basis during which it transpired that more taxes were collected.
Catering in all-inclusive hotels in Malta is charged at a composite vat rate of 7%. In a nutshell, restaurants located in prime sites are facing increasing rents, now linked to a drastic reduction in the seating capacity as stated earlier and increased food costs. These combined factors push owners to either hike up menus as the alternative to remain tax compliant results in losses after the supplement stops. Some face failure as when the airport and ports reopen there will not be any stampede of cash-laden tourists.
The spectre of rising rents and licenses makes one doubt if the landlord is earning more than the catering operator who risks so much time and energy to meet all the health and safety requirements. Now due to Covid19 regulations they are facing reduced revenue but no reduction in fixed overheads. A reduction in vat on catering will encourage more patronage during these difficult times and reduce the cost of living – which is silently spiraling out of control.