Sociologist from Malta

Thursday, November 20, 2014

Budget 2015: Positives, negatives, unintended repercussions and policy gaps

Labour’s 2015 budget has various implications. Some measures are welcome and others might have negative – even if unintended - repercussions. One can also note policy gaps concerning issues which were avoided in the budget speech.

As regards economic and financial policy, so far the Labour Government has managed to keep Malta in a relatively stable position with various positive indicators, as was the case with the previous administration during times of global financial crisis. The Budget does not contain sudden shocks or surprises with potential destabilizing effects in the short run.

At the same time, however, it has to be seen whether the emphasis on policies such as sale of citizenship and construction are sustainable in the long run. It also has to be seen whether certain expenditure trends and industrial indicators are reasons for concern.

One of the main emphases of the Labour Government’s budget for 2015 is to reduce welfare dependency. Active labour measures have been consolidated and introduced.

Some of these measures act as an incentive for persons on social benefits to enter the labour market. In this regard, such persons will have their benefits phased out over a 3 year period, thus making work pay. This is in in line with the Jobs Plus initiative proposed by UHM prior to the last general elections and agreed with by the political parties and constituted bodies.

Though the tapering of benefits is a welcome step forward, a question which comes to mind here is what happens after the 3-year period, particularly if one’s employment is precarious. The lack of policies and legislation on precarious employment does not help things. In this regard, I would like to point out that as a signatory of the Jobs Plus initiative in my capacity as Chairperson of Alternattiva Demokratika – The Green Party in 2013, I had proposed the inclusion of ‘decent jobs’ in the Jobs Plus text. This was included in the official text. To date, Government has not followed this through.

One of the other active measures is based on ‘punishing’ those who do not abide with workfare measures – in this case I am referring to the Youth Guarantee scheme. Welfare claimants under 23 years of age will lose their benefits if they do not sign up to it. For a variety of reasons, not all young persons will necessarily sign up, and the net effect may be increased poverty amongst such persons and, if they are parents, their children. Is this socially desirable? I would have preferred this scheme to have been introduced as an incentive to empower youth, rather than one having negative undertones.

A variety of other social policy measures in areas such as disability, childcare and parental leave are most welcome.

What is not welcome, in my view, is Government’s lack of prioritization for pension reform. Reliance on voluntary third-pillar pensions can result in a situation where only a minority invests in the scheme. Others, for a variety of reasons ranging from lack of affordability to lack of concern with a distant future, may not invest in pension, eventually resulting in increased inequality amongst elderly persons. I would have preferred the introduction of compulsory second pillar pensions, with Government making up for persons who cannot afford them. This would help manage risks associated with poverty and inequality amongst pensioners.

As regards the cost-of-living adjustment, Government’s unilateral decision to add a 35 Euro bonus is potentially a pandora’s box. If next year’s COLA adjustment is deemed to high by employers, will this result in a compensation by Government? And will every budget from now on be characterized by toing and froing on additional adjustments? How will this effect the agreement between State, employers’ and workers’ representatives on COLA? Perhaps it is time to look into the COLA methodology, and to discuss related matters such as Malta’s minimum wage.

Various environmental and transport-related initiatives are welcome, provided that they will be effectively implemented. However, various environmental problems such as over-reliance on construction, water sustainability, poor and shabby infrastructure and the presence of over-polluting transport require more determined policy-making.

As regards energy, there are too many unknowns and uncertainties to give a proper judgement. Government’s lack of transparency is not helping things, and the sense of anticipation and expectations created by Labour ever since the start of the 2013 electoral campaign is backfiring at this particular moment.

The rhetoric on energy hubs, renewable energy and diversification needs to be substantiated in the coming weeks so as to defuse the uncertainty in the field. Besides, Government should clearly show whether the reduction in utility bills is financially sustainable, given the delays and unknowns in Government’s plans.

In sum, various budgetary measures are in line with Labour’s electoral pledges and are politically legitimate, even if at times contradictory. However, the success of a budget should also be measured in terms of sustainability, unintended consequences, and the cost of non-decision making.

The above also appears as an interview in The Malta Independent, 20th November 2014:

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