Making work pay, but for how long?

The ‘make work pay’ policy should be coupled with an increased drive to combat precarious employment

Edward’s got a brand new bag...
Edward’s got a brand new bag...

One main thrust of Labour's budget for 2014 is the attempt to make work pay by incentivizing unemployed workers to enter the labour market. This line of reasoning can help empower unemployed persons to escape welfare dependency, but it has to be ensured that decent jobs are available.

Policies also have to be sensitive to the needs of persons who have various responsibilities. Policies in this regard include free childcare for working parents and educational grants for unemployed single parents. Those who are employed after registering for more than two years, will face gradual benefit cuts from 35 per cent in first year to 55 per cent in second year and 75 per cent in third. This is a shift from the immediate cut in benefits that was previously in place, which acted as a disincentive to work.

On the other hand, unemployment benefits for those unemployed for over five years are now conditional to attending a full-time course.

It seems that Malta will be retain its hybrid welfare state which cannot be categorized neatly into one welfare model. Indeed, it seems to be the case that on the one hand various welfare benefits remain universally accessible, but on the other hand others are becoming increasingly conditional. Though this seems to be along the same lines of work-fare models such as the one found in Britain, the conditions imposed by the Maltese state are less demanding, and, therefore, have a stronger sense of social conscience.

An immediate question which comes to mind is whether one will find a decent job after attending a full-time course: sure, such training can lead to greater employability of unemployed persons, who will also have the prospect of retaining benefits as explained above, should they manage to find a job; so theoretically, it would be more worth it to be in employment than to be dependent on benefits.

In itself, the gradual tapering of benefits is welcome, as it rewards those who seek employment, but I hope that this policy is discussed further before being implemented. For example, what will happen to affected persons following the third year of employment, if their job is low-paid? Would it still be worth it to work? And if one does manage to find a job, which, however, is unstable, how would this related to the gradual reduction of benefits? 

So policies which intend to make work pay should be coupled with an increased drive to combat precarious employment and guarantee that commitments of unemployed persons (such as caring responsibilities) are not made impossible to carry out due to the conditionality of welfare schemes.

If the Labour government is subscribing to the policy framework that work should pay, an increase in the minimum wage would have actually acted as a strong incentive for unemployed persons to enter the labour market.

Edward Scicluna has also spoken about the need to incentivize third-pillar pensions. A main dilemma of this policy is that those who can invest in such pensions will be rewarded, whilst those who cannot - the majority of workers - remain with an uncertain future as regards their own pension. One should also keep in mind that the third-pillar pension is voluntary, giving us the freedom not to save for our future. Is this freedom a leap in the dark?

If we are to have a sustainable pension system which moves away from great inequalities amongst the elderly, the plain truth is that state investment should increase. It is also evident that such investment needs funding. Whether this is to be achieved through taxation or through compulsory second-pillar pensions - with the State making up for those who cannot afford to pay - has to be seen.

On taxation itself, Malta is moving from progressive income tax to regressive indirect tax coupled with a cash-for-citizenship scheme. Here one has to keep in mind that Malta's 35 per cent maximum income tax rate was one of the lowest in Europe and generated essential revenue for public finance. Besides, progressive income tax is guided by the philosophy of redistribution of wealth, whilst indirect tax tends to hit hardest those on low incomes. Financial, economic and social trends in the coming months will make things clearer on the impact of such fiscal policy.

As regards other sectors, the budget has various measures which will probably pay off economically and politically, even though I still fail to see why, for example, the disability pension remains so low. As regards the environment, the budget does refer to renewable energy and water, but not enough is being proposed.

The more we postpone prioritization of such environmental issues, the more we will have to pay in the future to make up for energy dependency and water shortage. Perhaps it is time to extend MCESD membership so as to include Environmental NGOs. Not that their participation in MEPA is making so much of a difference, though.

How much will a worker earn if we combine the minimum wage plus the 65% unemployment benefit? What happens if he quits after a year or 2? What effect will it have if he retires after year 2?