Abela’s COVID-19 budget won’t work: we should be planning a fightback

The coronavirus threatens Malta’s and the world’s economic life.

Robert Abela’s imploration to the public not to see this as ‘the bubonic plague’ has failed to latch on to the life-changing effects that the coronavirus lockdown and the stress on our health services, and negative growth impact, is already having on our lives.

Nor has his gentle appeal to business owners to ‘think about workers’ been backed by decisive steps to secure economic peace of mind.

For the most important message he had to impart to all and sundry was to call on business owners not to lay off workers or close down their business: government has to step in and pay idle workers and maintenance costs while on shutdown.

Denmark struck a historical deal with trade unions and employers’ associations to stop mass layoffs during the quarantine. During the next three months, the state will cover 75% of the wages of workers threatened by job loss; companies will cover the remaining 25%, while workers will give up five days of paid holiday time, in other words work five days for free. The deal covers companies who would have to lay off at least 30% of staff, or 50 staff or more. In return, companies commit to not lay off any staff for economic reasons while they’re receiving state compensation. The self-employed, owner-managers and many on casual contracts are however not covered by the Danish government’s scheme.

The UK has only just announced it will pay 80% of salary for staff who are kept on by their employer, covering wages of up to £2,500 a month. The wage subsidy will apply to firms where bosses have already had to lay off workers due to the coronavirus, as long as they are brought back into the workforce and instead granted a leave of absence.

There is no doubt that in such unprecedented times, it is unprecedented measures that are needed to stop people losing their jobs, to help them pay the rent or mortgage, and have enough set by for food and bills.

Abela was expected to announce the Maltese economic fightback, but instead he asked Maltese companies to loan more money on interest rates which banks (the main banks, Bank of Valletta registered close to €90 million in profits and HSBC, €30 million in 2019) have not yet been asked to reduce. Liquidity in the form of interest-free loans can help businesses stave off lay-offs for a few months, but loans will only smoothen a period of high costs (with little or no revenue), without offering any sort of compensation to keep workers on the payroll.

Such a debt burden at the end of the coronavirus crisis will not help businesses rebound.

Malta’s employer organisations have asked for a 50% coverage of wages. It seems like a huge investment, but indeed, for a surplus economy like Malta’s, which has also built a €500 million social and development fund, it should be seeking to invest in keeping economic confidence and avoid the costlier economic crisis, post-COVID-19.

Instead of assisting Maltese businesses to keep their employees on their payrolls, the Maltese government seem more inclined to have the employed shifted to the unemployment register. The move misses the fundamental benefit of wage relief programmes, and the necessity to force landlords and banks to comply with a low-rent and low interest rate regime in what is nothing other than a war economy at this stage.

Robert Abela must wake up now. The damage is being done as we write.

Maybe it is his finance minister Edward Scicluna who has caught the Brussels bug, where the eurozone ministers this week seemed less inclined to announce a Europeanised stimulus package, and instead simply endorsed national measures.

The UK example is perhaps the most staggering example of government intervention so far, let alone coming from a Conservative government, indeed generous by Scandinavian welfare standards. It is this type of social safety net that the Maltese need if they want to mount a fightback at the end of this coronavirus crisis – not unemployment benefits.

Abela and Scicluna cannot be scared of spending and racking up the necessary government debt needed for this national stimulus. The risks of not acting now will be greater than what lies ahead in the next months. And certainly enough, the government has to bring banks in line to help the process.

It must alleviate economic hardship during the epidemic to prevent lasting damage to the economy by stopping what will be a short recession from turning into the next Great Depression. If businesses liquidate, workers’ families will suffer instantly; if Malta loses its army of small business owners – people who are not making millions, but are sustaining SMEs with decent returns and feeding anything between 20-50 families at one go – we would have utterly destroyed the social and political relationships in Malta between business owners, workers and customers. Their laid-off workers will leave the businesses in search of new jobs; the businesses will simply die.

What Malta needs is a form of universal credit for all, a pro rata social insurance that differentiates between idle workers and not-so idle workers on reduced hours, so that businesses that cannot trade can keep on all their workers, even those who are idle while at home, to return straight to work at the end of the crisis and restore the supply chain.

It would have to keep in mind that unskilled, semi-skilled and other lower-paid workers, especially manual labourers who could also have less savings to depend on, are more likely to be hit by a lockdown where they cannot work from home. The government would have to assist businesses in meeting rental payments, utilities, bank debts and insurance costs necessary to keep their businesses alive. By extending this life support, businesses can bounce back and avoid the risk of bankruptcy.

The goal of a universal credit is to kick-start that demand after people have spent months being unable to spend on goods and services, ensuring a quick rebound.

And indeed, there is no doubt that this kind of spending flies in the face of dreaded European Stability Mechanism fantasies, that other political pipe dream of eurocrats who believe in surpluses and austerity packages. It is only through an increase in public debt that Malta’s ‘Marshall Plan’ can be financed. Simply put, the Maltese government must socialise the costs of our social distancing measures and lockdown prospects.

The lessons of the past are there for all to see, from the New Deal of the Great Depression to the Marshall Plan for war-torn Europe. These were programmes designed to rebuild infrastructure and provide public sector jobs, relief to the unemployed and poor, enact sweeping banking reforms (in the case of the Depression) and rebuild bombed-out economies after World War II. The most effective tool to safeguard the Maltese workforce, is a massive increase in public spending – a direct spend that keeps domestic production going, and also contributes to new investments that create real jobs, and are future-proofed for the circular economy and a climate-friendly environment.

Health workers: the national frontline

There is little doubt that Maltese viewers of the livestreamed press conferences from the health authorities have a new hero in mind: Prof. Charmaine Gauci and our public health experts are the real army on the frontline of the war against the virus. Together with doctors and nurses, it will be pharmacists, social workers and carers, teachers, and the providers of essential services who will be attempting to keep up the effort to deliver a decent life and care to the Maltese.

Our sense of the community will be severely tested. Our lives are in the hands of the experts now, not the politicians and their sycophants.

We are also witnessing one of Labour’s greatest errors coming to light: at a time when the Maltese healthcare system is under great stress to deal with the coming spike in infections, we cannot forget that a substantial part of Malta’s healthcare workers have been passed into a dubious public-private partnership; millions in tax money are committed to the PPP suspiciously granted a generous 30-year concession on state hospitals. This is not the time to consider a costly exit strategy from the Vitals/Steward concession. But it is indeed the time to ponder on how Joseph Muscat facilitated the passage of state healthcare into the hands of private enterprise, for no apparent public return. The pandemic teaches us in the most severe ways, that healthcare is a public good, and that the national coverage of our public health system is what is protecting us from the ravages of the pandemic.

It is our welfare state that makes Maltese society a stronger community to take on the crisis. Not the law of the market.