Joe, Mary and the 100,000ers: a case for targeted support

Statistics tabled in parliament by the Finance Minister show that in 2021, there were almost 5,000 people who declared income of more than €100,000. 

The irony of the situation is that these wealthy individuals are benefiting from government’s energy support measures, in the same way as ordinary Joe and Mary who earn €15,000. 

Indeed, the 100,000ers are most probably benefiting more; because the generous subsidies have frozen the costs of their water- and energy-guzzling swimming pools, and luxury lifestyles. Fuel for their high-powered cars and yachts is also subsidised in the same way as fuel for Mary’s ordinary car. 

The indiscriminate energy and fuel support, that government is affording to all households and businesses, will have cost taxpayers more than €1 billion by the end of this year. 

This expense has admittedly helped isolate Malta from the impacts of higher energy prices internationally, allowing the economy to continue prospering. 

But it is also the single largest public outlay that is having an impact on the country’s deficit, which is slated to moderate to 5.1% this year. 

The European Commission last Wednesday recommended that EU member states start phasing out universal energy support measures by the end of this year, and instead adopt a targeted approach to shore up the most vulnerable. The recommendations are not binding but indicate the direction the Brussels executive wants member states to take. Reining in expenditure will help bring deficits down and eventually set countries on a healthy path to sustainable finances. 

Let us be clear, Malta’s debt level – which is the ultimate drag on any economy – is nowhere near alarming. Despite debt having increased substantially over the past three years as a result of necessary extraordinary spending during the COVID years (and after that, the Ukraine war), Malta’s debt-to-GDP ratio is still expected to remain below the 60% mark this year, and the next. 

The main issue here is not a firefighting exercise to address a debt emergency, but a judicious rebalancing of spending, to start rebuilding enough buffers for the government to have more room to manoeuvre in the future, should another major crisis hit the world, or region. 

It is within this context that the Finance Minister, and more importantly the Prime Minister, understand the need to map out an exit strategy from the current state of affairs that sees indiscriminate energy and fuel support. 

Government already distinguishes between income thresholds in its tax refund scheme. Workers who earn more than €60,000 do not qualify for the tax refund cheques. This was posited as a measure of social justice when the scheme was introduced in 2018. 

The same principle should apply to energy support. People who earn above the €60,000 threshold are better placed to finance their own energy-guzzling lifestyles. 

The funds saved from such a decision could be used for a permanent tax cut that would benefit the hardworking middle class. 

Fuel subsidies should also be phased out gradually, and financing directed towards renewable energy projects. The public bus service is already subsidised to allow free transport. It may not be as efficient but it is an alternative available to everyone. 

Adopting a socially just approach will ensure that people who are unable to make it to the end of the month with their wage or are struggling to do so, find the required support to break the cycle of despair. 

MaltaToday’s survey on income and inflation shows that at least 121,000 are struggling to make it to the end of the month. 

Admittedly, a relative majority are still comfortable albeit unable to save for a rainy day, having seen their disposable income erode as a result of food and services inflation. 

This cohort of middle income earners also needs to be given a breather, and targeted support could bolster their situation. 

Robert Abela’s government must start thinking more like a modern socialist party that places greater emphasis on pulling up the middle class and the most vulnerable. 

The promise of unlimited support to everyone, for as long as it takes, will start to sound hollow when the EU starts breathing down the neck of member states who fail to rein in runaway expenditure. 

It won’t help having to make forced drastic cuts in a context where people have been given the impression that money is not a problem. Abela would be doing himself and his government a favour by sobering up to reality, and redirecting financial help to where it is truly needed. 

The 100,000ers certainly don’t need government to shore them up. All they need is for government to create the right economic conditions that allow them to earn more. But Joe and Mary could do with a direct boost in income that makes their life a little bit easier. 

Energy support should be given to vulnerable and average households, giving the government space to redirect expenditure into public investments; and providing middle class workers with a permanent, meaningful tax cut.