[ANALYSIS] They came, they paid, they left... Malta’s growing foreign population

Most foreign workers stay here for a few years, pay rent, social insurance contributions and taxes and leave before receiving a pension. But what would happen if they all suddenly leave? and is Malta big enough to sustain an increase in their numbers? James Debono probes the issue

On Sunday Prime Minister Joseph Muscat turned the guns of economic logic against what he denounced as the “racist and xenophobic” comments towards foreigners following the death of Zack Meli, the 24-year-old man who lost his life in Paceville a week before.

It was a timely reminder to the Maltese that they owe a large part of their present prosperity to foreign workers and should be wary of killing the goose laying the golden eggs. “Like every country which becomes wealthy, we need to attract people who do certain kinds of work, and these people are themselves creating wealth – they are paying National Insurance, and since many will leave within six or seven years, they will not even receive any pension.”

Malta’s major shortcoming remains its relative insuccess in improving educational and technical achivement across the board. This problem was been masked by the very high levels attained by a significant minority

Muscat added that Malta no longer had a pensions problem because so many people were paying NI, and instead the government could increase pensions every year.

Basically what the PM is saying is that by opening up our labour market to foreign labour we have managed to rake up more contributions and this enabled us to do away with the need of painful pension reforms, like introducing a mandatory second pillar pension scheme or increasing the age of retirement further.

Yet will this make Malta more dependent on the economic sectors which fuel the need for foreign labour, namely construction at the lower end and gaming and financial services at the higher end? And can Malta sustain an ever-growing population?

A rentier way of life?

Labour MEP Alfred Sant agrees that in theory the influx of foreigners can positively contribute to the sustainability of the pension system.

“If foreign workers do not then stay on and access their pension entitlements, in theory this should lead to less pension payment pressures on the financial system over the medium to long term,” Sant told MaltaToday.

But the Former Labour leader also sees risks in Malta becoming too dependent on foreign Labour.

“Does it mean that this country will end up like an Arab Gulf state, which depends on transitory human resources to fuel economic surges whose final outcome is unknown?” he asked in article penned in the Independent in September.

The tempting ambition for a small island society like Malta “has always been to acheive a ‘rentier’ way of life, that the presence of foreign workers encourages further.”

Still  Malta’s best guarantee for the future is to achieve excellence in educational achievements and technical skills for the whole of Maltese society, a long term projects which provides “very limited to zilch in terms of short term political dividends.”

Malta’s major shortcoming remains its “relative insuccess” in improving educational and technical achivement across the board.

“This problem was been masked by the very high levels attained by a significant minority”, Sant adds.

Saving for a rainy day

For economist Gordon Cordina the priority should be investing the dividends from the current economic boom in the sustainability of our pension system. When asked whether we can do away with the need of a second pillar pension fund thanks to the current bonanza, Cordina was skeptical. “I do not perceive mandatory second pillar pensions as a measure to avoid.”
For economist Gordon Cordina the priority should be investing the dividends from the current economic boom in the sustainability of our pension system. When asked whether we can do away with the need of a second pillar pension fund thanks to the current bonanza, Cordina was skeptical. “I do not perceive mandatory second pillar pensions as a measure to avoid.”

For economist Gordon Cordina the priority should be investing the dividends from the current economic boom in the sustainability of our pension system.

When asked whether we can do away with the need of a second pillar pension fund thanks to the current bonanza, Cordina was skeptical. “I do not perceive mandatory second pillar pensions as a measure to avoid.”

A mandatory second pillar pension fund would see employers and workers being obliged to pay an amount over and above their current National Insurance contribution to ensure the sustainability of future pensions.

The measure was seen as the next logical step for pension reform by the previous PN government which never got to its actual implementation. But it has been excluded by the present administration which has banked on increasing the number of contributors, through greater female participation and the increase in foreign workers.

Cordina sees a second pillar as a potentially important supplement to increase and diversify retirement incomes, provide a pool of savings to invest in national development and to relieve some of the pressure on the real estate market as the main vehicle to invest towards retirement.

Cordina’s recommendation is that of using “the wealth created by the ongoing strong economic growth, sustained in good part by labour immigration, and reflected in a fiscal surplus”, to kick-start and bolster funded pensions.

This can be done by providing generous incentives to workers saving in them (and to their employers), particularly to those with relatively low incomes and issuing saving instruments with attractive rates of return for the exclusive use of such pension funds.

This could also help insure retirement income against future economic risks to growth and migration patterns, Cordina says.

Is Malta full-up?

Between 2012 and 2016 Malta has seen its population rise by 40,000. This increase in population coincided with a construction boom which has turned localities like Gzira into permanent construction sites. Concern on social, environmental and infrastructural problems have also increased.

MaltaToday’s surveys show that before 2014 concern on migration fluctuated according to the number of boat arrivals, reaching a 27% peak in 2009 and rising again to 17% in 2014. But the latest MaltaToday survey shows 10% concerned with the number of foreigners living in Malta and 6% concerned about illegal immigration. This probably reflects the sharp increase in the number of foreigners from 15,000 in 2012 to nearly 38,000 in 2016.

Even when it comes to environmental concerns, respondents are now more likely to mention problems related to construction than the generic concern with the “environment” mentioned in pre-2013 surveys. But at 16% concern on the environment and construction has now emerged as one of the top three concerns along with traffic and immigration.

Reverse irredentism: Why not buy Pantelleria?

Malta is only three times bigger than Pantelleria but has fifty times its population. But unlike Pantelleria, which remained a pristine Mediterranean island, the arrival of the Knights of St John in 1530 put Malta on the trajectory of becoming a distinct nation, with its population rising to 100,000 by 1800, partly thanks to the influx of “foreigners.”

“It’s not the first time that Malta has experienced an influx of foreigners. For instance one could argue that during the rule of the knights, the island’s economy, such as it was based on a similar model,” notes Alfred Sant.

In many ways Malta has compensated for its small size by increasing its population.

“When our population grows, we get bigger – despite the limits of our physical territory. I also consider the influx of foreign people to be very refreshing socio-culturally, for our diversity, possibly relieving some of our political bi-polarity, our homogeneity,” says economist Marie Briguglio, who lectures in environmental economics at the University of Malta.

Sociologist Godfrey Baldacchino comes up with a thought-provoking solution to Malta’s current impasse. “Is it time to start thinking seriously about offering to buy Pantelleria from the Republic of Italy?”

This out of the box solution would see the sister Mediterranean island absorbing the spillover of our economy. It would also provide work to the 7,000 or so residents of Pantelleria, while serving “as a home to the burgeoning local population in Malta”.

“It would also resurrect an old relationship between the two islands, and avoid all talk about major land reclamation efforts here which are bound to have grave environmental consequences.”

Baldacchino disagrees with the whole idea that Malta has a carrying capacity or a natural limit over and above which it would suffer from over-population.

“The concept of ‘carrying capacity’ is an alluring but bankrupt one. Prime Minister Alfred Sant had once suggested that Malta’s carrying capacity for tourism was 1.2 million visitors annually. We are now at two million tourists per year and nobody’s blinking.”

According to Baldacchino small islands invariably reach out and attract resources from elsewhere – foreign investment, tourists, merchandise, know-how – that support the islanders’ standard of living. “Immigrants can also contribute to this. If these are economic migrants, then they will stay short-term or as long as the economy is chugging happily along; if so, they may have little interest in ‘integrating’ with the local community”.

But there are also others, who have come and plan to stay. “The responsibility for their integration needs to extend to NGOs, faith-based groups and local communities,” Baldacchino says, warning that a sudden increase in population needs to be complemented with infrastructural planning.

“We do not need to remind ourselves that growth of any kind needs to have the proper infrastructure: water, energy, sewage, housing, transportation networks, education and health provision. Huge investments need to be planned and budgeted for, well in advance of any immigrant influx. Traffic gridlock and full-up buses suggest we can and should do much better.”

More foreigners, more permits

One consequence of the influx of foreigners has been a considerable increase in rents. Yet fear of a slowdown in the property market may well make us even more dependent on the daily fix offered by the construction industry.

In a recent interview Planning Authority executive chairman Johann Buttigieg warned that the moment we start issuing less permits “we would see rental rates and prices go higher due to foreigners competing with the locals.”

Buttigieg also suggested that it is thanks to the large influx of people coming to live and work in Malta that we can achieve the critical mass to solve the traffic problem. “If we don’t have a critical mass of people, then traffic solutions – such as a metro or others – would not be economically viable.”

Malta may be fast becoming a junky-nation dependent on the daily dose of construction, which is also dependent on the influx of foreign property buyers. Moreover, even Malta’s architecture has to reflect the needs of those sectors fuelling its growth.

This is confirmed by an Environmental Impact Statement assessing the impact of a 40-storey hotel in Sliema which is describing the change to the Maltese landscape as “an inevitable consequence of the economic model” based on financial services adopted by Malta.

“Once it was decided that Malta’s economic future was to be based to a substantial degree on financial services and high-tech operations, it was inevitable for such a transformation to be reflected on urban skylines.”

Malta is a small sink

Marie Briguglio says the Maltese may simply not be prepared to cater for the needs of a greater population, and that the footprint of citizens and businesses on land, on air quality, on water quality, has not – to date – been sufficiently well governed, and it is getting worse.
Marie Briguglio says the Maltese may simply not be prepared to cater for the needs of a greater population, and that the footprint of citizens and businesses on land, on air quality, on water quality, has not – to date – been sufficiently well governed, and it is getting worse.

The problem according to Marie Briguglio is that the Maltese may simply not be prepared to cater for the needs of a greater population.

“We were not prepared for a smaller population, let alone a larger population,” she says, noting that the footprint of citizens and businesses on land, on air quality, on water quality, has not – to date – been sufficiently well governed, and it is getting worse.

“Sure, huge infrastructural expenses (often with EU money) have been incurred, educational campaigns have been run and hand-outs in the shape of all manner of grants are designed. But that is not enough”.

In reality successive Maltese governments have been afraid to bite the bullet, to enforce with laws, with real penalties, to tax and to actively discourage negative impacts of traffic, of waste (including by business), of construction, of destruction of the countryside.

For Briguglio, the problem is not the increase in the number of people but the lack of management of our capacity.

“A small sink can receive hundreds of liters of water if the drains function well. But if the drain is blocked, even drops totalling a few litres will be a problem. Right now, we are like a small sink with a blocked drain. We are not managing flows well. If we get our act together, manage stuff well, then we can receive many more people. The question is, will government do the dirty work like a good plumber to fix the pipes, or will it wear kid gloves when handling polluting activities?”

Alfred Sant’s main concern on the influx of foreign workers revolves around the uncertainty it brings.

He refers to possible impacts on prices, housing, health care, education and national security apart from higher instability and volatility in the labour market.

“It seems to me, but I may be wrong that we do not have a model as to where all this may go or even where we would like to take it.”

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