Budget 2017: ‘No one left behind’

Budget 2017 provides many short term solutions, but fails to answer fundamental questions

20 October 2016, 9:18am
Cartoon by Mikiel Galea
Cartoon by Mikiel Galea
At a glance, Budget 2017 does indeed appear to be the product of an economic boom – as Finance Minister Edward Scicluna took pains to underscore in his address to the House on Monday. 

Scicluna may perhaps be forgiven for sounding a slightly triumphant note in that speech: it was only three years ago that Malta was warned of dire economic consequences should Labour win the 2013 election. 

From that perspective, the current administration must be lauded for achieving unprecedented economic growth and record low unemployment, despite so many predictions to the contrary.

All the same, the Budget itself also points towards an increase in relative poverty. This is perhaps the inevitable price of economic success. The wealth of a nation is after all calculated on national levels: we talk of ‘Gross Domestic Product’, which tells us much about the worth of the country as a whole... but very little about the net worth of the individuals of whom it is composed.

Scicluna himself acknowledged this paradox, when he pointed out that “poverty is not a perception, but a reality we will tackle with facts.” 

What remains to be seen is if Budget 2017 delivers on its promise of ‘distributing’ wealth in a just and equitable manner. Judging by the initial reactions, it seems the social partners are by and large content. Very few sectors of society were left out of the government’s target list. Closing an eye at the inevitable political disagreements, one would be hard pressed to identify a sector that is vociferously dissatisfied.

But this fact alone does not answer the key question. With Budget 2017, the Labour administration has in many cases stepped in to address social issues on a case-by-case basis. While this may occasionally be necessary to alleviate particular problems, it cannot be seen as a long-term solution. 

To put the matter succinctly: poverty is not solved by throwing money at individual cases. There has to be a corresponding systemic change aimed at lifting people out of poverty in meaningful, lasting ways... as opposed to the occasional government hand-out here and there.

In this respect, 2017 Budget is also an admission that the celebrated ‘trickle-down effect’ of free-market economics does not work for everyone... least of all for the most vulnerable in society. Rather than tackle the failure of the system head-on, the government chose to shoulder all the burden by giving hand outs to pensioners and low income earners, while refusing to increase the minimum wage or control spiralling property prices.

Elsewhere, the government has passed up on an opportunity to address the root causes of growing inequality by (among other things) taxing wealth, or regulating the rental market.

One example is the measure which will double the rent subsidy received by low-income tenants. 

The Housing Authority had until this point exempted the requirement for tenants to present an official receipt, because many landlords refuse to be regulated; and as a result, many tenants would have ended up without a subsidy, and most of the beneficiaries are low-income female-headed households.

For the same reason, the new requirement for official receipts by landlords will not encourage them to declare rent income; in practice, this means that the most vulnerable tenants often won’t be able to apply and benefit from rent subsidy.

While the intention is commendable, one must question the point of raising rent subsidies, if these prove inaccessible to the people who really need them.

 Moreover, the government’s reluctance to regulate the property market could see the problem of inequality grow. Charles Miceli, of the Alliance against Poverty, has warned that landlords might raise rents, since the government is increasing subsidies without setting any limits on rental prices. This could translate into a situation where the only net beneficiaries are the landlords themselves. 

The only way to ensure that landlords register their properties as rentals is to tax vacant properties. This would also act as an incentive to place more properties on the rental market – which in many cases would necessitate restoration, to the benefit of the surrounding environment – which in turn could stabilise prices by increasing supply.

Again, however, the government stopped short of enacting this much-needed reform.

 Similarly, the government’s reluctance to increase the minimum wage belies its assurances of an economic boom. There is evidence that the minimum wage is too low to guarantee an adequate standard of living. Economists have pointed out that increases to the minimum wage have little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labour market. 

Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and consumption, while indirectly contributing to job growth. 

The government is clearly deluding itself if it thinks – as its Nationalist predecessors all did – that sporadic increases to the Cost of Living, alone,  can serve instead of an increase in the minimum wage.

In brief, Budget 2017 provides many short term solutions, but fails to answer fundamental questions: is the economy sustainable, is it an economy for everyone and is inequality growing? And most important of all: is enough being done to ensure that nobody is really left behind?