Wednesday, October 30, 2013
Some budgetary priorities for 2014
The upcoming budget will show us the direction that the Labour Government wants to take in the coming years. For example, we will see whether Labour wants a continuation of Nationalist budgets which offered economic stability, yet which increased social inequalities and gave scant importance to various environmental priorities, in a hybrid welfare model.
I think that Labour should propose a budget which gives priority to social and environmental policies whilst ensuring Malta's relative economic stability.
For example, as regards income tax, the reduction of tax for high-income earners is going to deprive Government of a source of revenue which is essential to finance public services. Even though both Labour and Nationalist Parties agree on this populist measure, I urge Labour read the writing on the wall and admit that this proposal is unsustainable in view of the state of public finances. The 35% maximum tax rate represented a historic compromise between employers and unions, was on the low-end of tax rates in Europe and could not really have been seen as a major disincentive for investment.
Sure, Labour can say that to make up for income tax losses, it will generate revenue from its cash-for-citizenship initiative. But the latter does not qualify the social justice test, as it opens doors for millionaires whilst slamming them to those escaping oppression.
On the other hand, an increase in the minimum wage would pass the social justice test. It is clear that around €700 per month is not enough to enjoy a decent quality of life. A reasonable minimum wage increase can improve matters for such low-income earners whilst generating economic growth given the multiplier effect of subsequent consumption. Besides, it can act as an incentive for persons to seek formal employment, given that this would be more attractive. Hence, productivity can increase too.
Similarly, it would also make sense to reform welfare in a way which not only guarantees decent benefits for the unemployed and those who do not form part of the labour force, but also rewards those who are seeking employment but are disincentivised from doing so given the subsequent loss of benefits. The latter can result in perverse situations where employment results in a lower standard of living. For this reason, benefits should be retained for low-income earners and be gradually reduced only once one enjoys employment stability and once one's income from employment is sufficient without respective benefits. Such policies should also be coupled by more family-friendly measures such as universally accessible childcare centres.
I hope that the pensions issue is prioritized in the upcoming budget. Retaining the status quo is not an option, as this will basically result in a bankrupt pensions system. I also am very wary of simply introducing incentives for third-pillar pensions. As UHM puts it, only one forth of workers can afford such voluntary private pensions. What will happen to the remaining three forths?
I think that the immediate way forward is for the State to ensure that pensions are sustainable, universal and egalitarian. In the current scenario, one has to see whether this can be obtained through compulsory payments for second-pillar pensions or through generation of other sustainable revenue flows, or through both. In the final instance, the plain truth is that sustainable universal pensions require more injection of state funds. This elephant in the room simply cannot be avoided any longer.
I also hope that clean renewable energy is given the importance it deserves. The current debates on gas, pipelines and all the rest seem to be alienating us from the fact that Malta is Europe's laggard on renewables, to the detrminent of climate change and strategic challenges in the field.
Schemes which encourage investment in photovoltaic cells and solar water heaters should be strengthened, but Government should also keep in view that many households cannot invest in such energy due to occupation of penthouses or adjacent building heights. Hence, Government could compensate by increasing investment in renewable energy on public property.
Government should also ensure that eco tax really serves its purpose by punishing practices which are harmful to the environment and health and rewarding green methods. Vacant properties and usage of water are two areas which immediately come to mind. Malta is the most built up country in Europe, yet 75,000 properties are vacant. Water is being drilled for through boreholes in a free-for-all situation which is increasing infiltration of sea water in the water table and increased dependency on costly reverse osmosis plants.
Time is also ripe for Government to take tough action against cars and trucks which, ideally, should not even be allowed on our roads given their polluting qualities. A cursory look at some buses which are temporarily replacing bendy-buses is a clear example of this.
This blog also appeared in Malta Today 30th October 2013: http://www.maltatoday.com.mt/en/blogsdetails/blogs/Some-budgetary-priorities-for-2014-20131030