Foreword by Mr. JeanCarl Grech
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The Objective
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1. Macroeconomic Conditions a. Economic Developments b. Labour Market c. Inflation d. Growth Prospects
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2. Fiscal Sustainability a. Strengthening Fiscal Framework b. Implicit Tax Rates
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3. Competitiveness a. Reforming Eco Contribution b. Price and Labour Market Competiveness i. Benefits for those who provide employment and offer training to their employees ii. Extension of free childcare service iii. Public-Private Initiatives – Projects Malts c. Gaming Malta d. Nominal and Real Effective Exchange Rate e. Malta’s External Trade Position and Foreign Investment Performance f. Islamic Banking g. Incentives for the Film Industry
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4. Principles of Social Protection a. Social Secutiy in Figures b. Poverty Reduction c. Well-Being and Health d. Unintended Consequences of Social Protection e. Sustainability of Social Protection
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5. Institutions that Work a. Employment: Creating the Right Incentives b. Digital Literacy c. More Communication with Local Councils d. Promoting Social Inclusion e. Gozo: Investing in Infrastructural and Human Capital
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6. Education: Key to Employment Opportunities a. Tackling School Absences
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7. Health: Quality Access and Sustainability
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The Hon Minister of Finance Dr Edward Scicluna explained how the budget for 2015 will be focused on a strategy to make work pay. Various measures have been announced in order to further strengthen the Maltese Economy. Such measures will be discussed in this document whereas the student’s opinion and proposals will also be given regarding economic areas. Some of the main measures included in the budget are; a reduction from 29% to 25% in the income tax rate of persons earning up to ₏60,000 and the Capital Gains Tax in the case of immovable property to be replaced by a Final Withholding Tax.
The Economic Affairs Review Board also notes an increase in various indirect taxes. The Maltese economy is currently experiencing positive results which augur well for potential international investors.
Overall one will note that the Maltese economy is expected to retain the positive momentum mainly due to the positive climate which the government is investing its resources in. Further issues surrounding the 2015 Budget will be mentioned and tackled further on in this document.
The 2015 Pre Budget Document embodies the government’s commitment to ensuring that society at large can benefit from the economic stability and successes achieved by this legislation – and possibly previous legislations – so far. Titled ‘Creating Opportunities, Not Dependencies’, the document lays out the government’s vision for the upcoming Budget: a plan ensuring that social welfare mirrors the government’s objective of creating opportunities whilst at the same time discouraging dependencies with guarantees of sustainable social protection. Moreover in the budget speech the Hon Minister of Finance declared that the 2015 Budget is based on the strategy of making work pay. The budget is aimed at incentivising and rewarding work efforts and discourages dependence on the social security system. As we shall see, measures were proposed aimed at the strengthening of social cohesion and reducing poverty for families on low income. For the second year running, one of the main targets of the Government for the upcoming year is to ensure economic growth and enhance competitiveness.
With the cost of social security rising to new heights, the government is justified in attempting to do all it can to reduce welfare dependency. According to the Budget, it mainly plans to do this through a programme aimed at encouraging every section of the population - mainly those living on social benefit - to enter the workforce, without losing sight of fiscal sustainability. This too will help curb both poverty and social exclusion. However, this will be no walk in the park since the problem is not just about offering incentives, however attractive these may be. First, there has to be work to go to. Then there may be other issues such as whether those unemployed (be it voluntarily or not) are willing and in a position to follow training courses that enable them to join the workforce. And not only training. Some might also require a change in attitude as well. This is where the Employment and Training Corporation (ETC) must be of help. One might ask what some of these incentives are. Hon Professor Scicluna stated that over the past 12 months, well over 6,000 new jobs have been created. With 4,000 of them being full time new posts by the private sector.
Apart from the parts dealing with the plans to cut dependency on social
Apart from the parts dealing with the plans to cut dependency on social benefits and inefficiencies in the public sector, the Budget document also includes a brief economic survey on how the Maltese economy performed during the first half of 2014, with comparisons to the European Union (EU) and Euro Area (EA). This review shall be looked at in further detail in the following section.
In the aftermath of the financial and sovereign debt crisis, the world economy has not been able to revive the growth conditions of the preceding decade as the main economies in the Euro Area continued to register growth below their potential. The performance of the global economy remained rather sluggish towards the end of 2012 and continued to be rather weaker in the first half of 2013. A rather subdued recovery in the global economy came about in the second half of 2013. According to the International Monetary Fund (IMF) World Economic Outlook for October 2013 and the European Commission’s European Economic Forecast for Spring 2014, growth in the global economy averaged 2.9 per cent in 2013, down from 3.2 per cent recorded a year earlier. The EU and EA returned to growth in the second quarter of 2013 after six quarters of recession. GDP rose by 0.3 per cent in both the EU and EA that quarter over the previous quarter.
When it comes to the Maltese economy, it is evident that Malta emerged to be quite resilient in weathering the economic crisis that shook the world since 2008. During 2013, whilst the global economy was slowly starting to emerge from the ruins of the said financial turmoil, the Maltese economy continued to grow by 2.9 per cent in real terms when compared to the previous year. From the expenditure side, growth was mainly attributed to the external side of the economy and to stock building. By contrast, domestic consumption contracted as households reduced final consumption, partly because of the electoral uncertainty which was present in the first three months of 2013. This lower consumer confidence was confirmed by the European Commission through its published Consumer Surveys. However, public consumption contributed positively towards economic growth as it then increase during the remaining three quarters. The Maltese economy is expected to grow by 3.0% in real terms during 2014, with a projected growth of 3.5% in real terms in 2015.
The Positive developments of 2013 appear to be persisting also in 2014. Sustained by a higher level of certainty, greater consumer, business confidence and a more stable economic climate, economic growth for the first half of this year accelerated to 3.4 per cent. This growth is driven by positive changes in both the domestic sector - in particular strong household consumption and a number of large-scale investment projects (gross fixed capital formation increase by 18.5 percent during the first half) - and also in the external sector, although to a lesser extent.
The performance of the labour market has been positive with the Labour Force Survey reporting an increase of 3.1 per cent in employment in 2013. In fact, according to Eurostat, the increase in employment growth recorded in Malta was amongst the highest in the EU and EA. Notable increase came from female employment. The official Eurostat harmonised and seasonally adjusted unemployment rate stood at 6.4 per cent in August of 2013, which is slightly lower than that prevailing at the end of 2012. The share of direct production employment in total employment continued to decline whereas the share of market services continued to increase. The most significant increases originated mainly in the private sector, particularly in activities related to professional and administrative activities; education; and health and social work. By contrast, the most significant decreases were recorded in construction and manufacturing. Consequently, the annual employment rate increased by 1.6 percentage points in 2013, rising from 59 per cent in 2012 to 60.6 per cent in 2013. During the same year, female participation rate increased by 2.7 percentage points to 50.2 per cent while the male participation rate increase by 1.1 percentage point to 79.4 per cent, after decreasing by 0.3 percentage points in 2012. These dynamics in the labour market helped sustain growth in aggregate consumption.
During the first quarter of 2014, employment continued to grow, increasing by 1.9 per cent over the corresponding quarter last year. As a result, the employment rate increased further by 0.9 percentage points to 60.8 per cent, with the employment rates of males and females increasing by 0.6 percentage points and 1.3 percentage points respectively. This strong increase in female participation rate in both 2013 and the first three months of 2014 reflect the positive impacts of the many policies being implemented in order to encourage female participation in the labour market. With regards to forecasts, the Ministry of Finance expects employment to remain strong and to increase by 2.1 per cent and 1.8 per cent in 2014 and 2015 respectively. Over the same forecast period, the unemployment rate has been projected to remain broadly stable at the 6.5 per cent level.
After reaching a six year trough in 2013, HICP inflation is projected to gradually rebound over the forecast horizon, driven by services inflation and persistently strong dynamics in food prices. In particular, annual inflation in services is expected to recover from the deflation registered in 2013 to its long-term average of around 2 per cent by the second half of 2014. Thereafter, it is projected to roughly stabilise in 2015, supported by the positive household consumption outlook. As a result, core HICP inflation is forecast to accelerate to around 1.7 per cent in 2014-15, in line with its long term average. Overall, inflationary pressures are, however, projected to be somewhat dampened by the reduction in utility tariffs for households as of last April, containing energy inflation. This outlook does not take into account the government’s commitment to extend the reduction in utility tariffs to businesses in 2015, which could lower overall HICP inflation for that year.
Against this background of progressive economic achievements, projections point towards a stable and positive performance over the forecast period 2014-2015. Indeed, according to the European Commission’s European Economic Forecast for Spring 2014, Malta’s real GDP is forecast to moderate slightly but to remain robust over the forecast horizon, reaching 2.3 per cent in 2014 and 2015, primarily thanks to domestic demand. In particular, large-scale projects in the energy sector (notably a new power plant) are planned during the forecast horizon. Due to the import-intensity of investment, net exports are thus expected to have a negative contribution to GDP growth in 2014. Household consumption is projected to contribute significantly to economic growth in both 2014 and 2015 as positive labour market conditions and a reduction in utility tariffs are expected to have a positive impact on disposable income.
For 2014 and 2015, exports in real terms are forecasted to increase by 2.3 per cent and by 4.2 per cent respectively, while real imports are expected to increase by 3.9 per cent and 4.3 per cent respectively. The tourism sector is also expected to show further growth at a moderate pace. Such
growth is reinforced thanks to increase in airline and cruise ship seat capacity; investment in hotels; and employment expectations in the said sector.
To conclude, With regards to risks to this macroeconomic scenario, the European Commission’s report states that these are mainly related to investment outlook. A number of additional investment projects are under discussion, whose realisation could provide a further boost to economic activity. As the same time, delays in the planned construction of the new power station pose a downside risk to these growth projections.
The general government deficit narrowed to 2.8% of GDP in 2013 from 3.3% in 2012, thanks to strong economic growth; a robust labour market as well as some discretionary measures. Substantial increase in income and indirect tax receipts boosted tax revenues growth above their nominal GDP. Expenditure continued to grow at a fast pace, driven by the increase in public employment and social spending, as well as an additional capital transfer from Air Malta.
In 2014, the government deficit is expected to improve further to 2.1 per cent of GDP, a decline of 0.7 percentage points. It is also projected to further decline by 0.5 percentage points to 1.6 percent in 2015 and to reach 0.7 and 0.3 percent of GDP in 2016 and 2017 respectively. The implementation of the 2014 budget was expected to boost revenues through increases in indirect taxation (mainly excise duties); a new programme to grant Maltese citizenship to foreigners against a payment of a fee and investments in the country; and the introduction of a new tax regime for rental income. With regards to expenditure, the 2014 budget envisaged to reintroduce restrictions on recruitment, while benefits of the ongoing comprehensive spending (that is the setting of firm expenditure limits) are expected to surface as of 2015. Consequently, current expenditure is forecasted to be more dynamic than current revenue whereas net capital expenditure is expected to decline also thanks to a lower capital transfer to Air Malta.
With regards to the government debt-to-GDP ratio, this increased to 73 per cent in 2013, an increase of 2.2 percentage points from 2012, mainly on account of a debt-increasing stock-flow adjustment equivalent to 2.4 percent of GDP. The debt ratio is projected to decrease by approximately 2 percentage points. Over the forecast horizon 2014-2015, following the repayment of a loan from Air Malta and the partial clearance of some tax arrears from Enemalta. This latter move would further decrease the debt.
Even though Malta has witnessed favourable growth through fiscal consolidation that reinforced the convergence towards a 3 per cent of GDP deficit, Malta was still faced by three excessive deficit
procedures since it joined the EU: 2004, 2009, and 2012. As a result, to ensure a lasting correction of the national deficit and to safeguard future generations by sustainably reducing the level of the country’s debt, the Fiscal Responsibility Act has been presented to Parliament. The Act ensures that Malta is in line with its EU obligations stemming from a revamped Stability and Growth Pact as well as the 2012 Treaty on Stability, Coordination and Governance. This Act established a legal basis for the creation of an independent fiscal council tasked with overseeing a rule-based approach to fiscal discipline.
In sum, it is therefore evident that the Maltese government is delivering on its promise to rein in the deficit below the 3 per cent threshold and also to gradually reduce the debt to GDP ratio below the 60 per cent threshold. However, the government seems to want to put forward the image that it is building a fiscal framework from scratch and hence not giving credit to what was has already been implemented by previous legislations to work towards this goal of convergence.
It is worthy to note that according to a Eurostat news-release; data shows that Malta has the lowest implicit tax rate on labour in the EU. Malta registered an implicit tax rate on labour of 23.3% in 2012. Upon analysis one would also find that the GDP-weighted average implicit tax rate on labour of the EU-28 was 36.1% in 2012, whilst that of the EU-18 was 38.5%.
Eurostat defines the implicit tax rate on labor as; the ratio of taxes and social security contributions on employed labor income to total compensation of employees. It is the sum of all direct and indirect taxes and employees' and employers' social contributions levied on employed labor income divided by the total compensation of employees working in the economic territory increased by taxes on wage bill and payroll. Furthermore the Malta’s overall tax-to-GDP ratio, meaning the sum of taxes and compulsory social contributions in % of GDP, stood at 33.7% in 2012. This was well below the EU’s average which was stated to be 39.4%.
Malta’s excellent performance in pharmaceuticals, financial services, gaming and ICT is a result of two main factors. First, Malta has created a relatively safe environment for such industries to be able to grow and develop. The economic climate of our country has attracted foreign investors in these areas to invest in Malta. Secondly, the ever-growing number of students furthering their studies in these areas has provided these investors with the human resources required for such specialist industries to be able to grow. This is a clear proof that Malta’s economy has been able to innovate itself and create new niche economies which are making the whole economy sustainable
The main aim for Malta should be that it becomes a hub of such services. To achieve this target, there should be continuous rethinking of the structure of each industry. In such areas there are continuous developments and changes to which the country must be efficient to cater for such developments. This would keep Malta relevant for such industries to continue growing and investing here. Moreover, if Malta manages to become a main player in Europe in all of these industries, we would have a healthy diversification in our economy. It would be crucial that if one of the industries experiences some difficulties, other areas would be able to compensate for it, limiting the impact on the economy as a whole.
Despite FITCH’s ‘A’ rating, Malta should keep its focus on ensuring “an export-led activity” (David G. Curmi), which can only be possible if Malta is competitive. Mr. Curmi also discussed Malta’s challenge in competitiveness, where he highlighted “energy rates, productivity, labour market conditions, transport costs and investment incentives” as the main obstacles for competitiveness in Malta.
The announcement by the government to reform the eco-contribution mechanism will help local businesses become more competitive. This is because they will be able to compete on a level playing field with foreign businesses.
It is also very encouraging that Malta’s inflation rate is moving closer to the EU average. As pointed out in the document, a reduction in accommodation prices, water and electricity tariffs have been vital for this to happen. If inflation is higher than the EU average this would seriously damage the purchasing power of consumers and they would not be able to purchase the same amount of goods and services.
Another encouraging factor was the increase in the compensation for employees which compares well with countries like Austria, Belgium and Denmark. Although this is a healthy statistic, one has to discuss the large difference that exists between the average level of compensations of these countries and that of Malta. Unfortunately Malta’s compensations are well below such countries, hence the government should aim to commence a long term programme which tackles compensations in Malta. This programme should aim to build a structure to raise compensations gradually.
Incentives for employers who employ disadvantaged persons are vital to ensure a complete inclusion in the labor market. Moreover, to encourage employers to invest in their employees through various training and courses the government has set up various incentives for this purpose.
Related to the idea of inclusion in the labor market, is the extension of free childcare services that should continue to encourage women to enter the labor market.
The Public-private initiative is another move by the government to encourage private investors to enter into various projects in different areas. This initiative should help to stimulate the private sector, where with the help of the government they will be able to undertake projects that will generate more economic activity, through employment of more people in the private sector and capital investments.
The rapid expansion in ‘i-gaming’ has created a new niche for the Maltese economy. Hence the setting up of a proper Gaming Authority is a wise initiative to make sure that such an industry has the right regulations in place that will help it to expand even further.
The appreciation of the Euro is a huge threat to the European exporter since importers around the world would be able to buy less goods and services from Euro areas. Despite the fact that no export market share decline was recorded in Malta, this was only because there was a large increase in the exports of services. The decline of exports of goods harms the manufacturing industry in Malta and could pose a threat to hundreds of jobs. Despite the fact that Figure 3.6 shows a stabilisation in the exports of goods, it is well below the exports of services. The aim should be to get the exports of goods close to that of services since both sectors are vital for our economy.
Considering Malta’s current development in the financial industry, it is quite strange to not that there was a drop in the Foreign Direct Investment in this industry. Moreover with Malta struggling to retain competitiveness in the manufacturing industry, it is even more surprising to see an increase in the Foreign Direct Investment in this sector. This is a very positive sign since it shows that foreign investors have positive expectations for Malta to regain its competitiveness in this sector and increase its returns in this area.
Financial services have become another very important pillar of the Maltese economy. Islamic Banking is a new revelation in the finance world, this system introduces a new financial system that is based on the ‘Sharia’ law. To make sure that Malta becomes a financial services hub the government should be aware of such revelations and make sure they have the space to prosper in our economy. During this budget the government has realized this new development in the financial world and will be facilitating its entry over the coming year. The Maltese financial services should take advantage of this incentive by the government by studying ways how Malta can also become a hub for Islamic banking.
The film industry has also experienced a steady growth. For Malta to sustain its competitiveness in such an industry it needs constant investment and the government has come up with various incentives in this budget to ensure the competitiveness of this industry.
Social protection refers to the promotion of a more equitable and inclusive society. The ideal poverty rate would be zero, however this might be tricky, and governments, the Maltese one included, need to introduce policies aimed at reducing such poverty levels. The government had issued a green paper in the first quarter of 2014, calling for proposals to reduce the number of people at risk of poverty. The president had stated that around 23% of the Maltese people were in danger of poverty, this refers to over 90,000 people, out of which 13,000 are children.
Meanwhile the government, via minister Farrugia, stated that the government’s target was to reduce the number of those at risk by 22,000 by the end of next year. €10 million have been allocated by the government for this specific purpose.
It has been noted over the years that the social security system has proved to be vulnerable to fraud and abuse. The social security act provides for two basic schemes, the Contributory scheme, and the Non Contributory Scheme. In the Contributory Scheme, the basic requirement for entitlement is that specific contribution conditions are satisfied. In the Non Contributory Scheme, the basic requirement is that the conditions of the means test are satisfied. The government affirmed that it would be working on several new initiatives which should ensure that individuals face clear incentives to work and hence contribute to the system and society. The EARB however notices that much further work needs to be done in order to encourage such people to steer away from dependency and provide more to the society as a whole.
One should praise the stand taken by the government, one to combat such abuse however one has to wait and see on whether the government truly embarks on a plan with the aim to grant social benefits to the ones truly in need. This should also aim to mobilize such citizens and grant them access to training and courses, such as the Leap initiative, that leads them to not being any more dependent on the government.
The Government also introduced the idea of an in-work benefit in this budget. This basically leads to parents who are gainfully occupied and who’s combined annual income ranges from €10,000 to €20,400 will be entitled to an annual in-work benefit ranging from €200 to €1,000 for every child who has not reached the age of 23. A gainfully occupied single parent on the other hand, who earns between €6,600 and €15,000 per year will be entitled to an annual in-work benefit ranging from €120 to €1,200 per child. This comes in additional to the child supplement for
families whose household income is less than €11,900 who will receive €400 for the first two children and €200 from the third child onwards, which supplement will be tied to school attendance, regular medical check-ups and the child’s participation in sport and cultural activities.
The EARB notices that the government is proposing changes to be made to the legal Notice exempting from tax those persons who are on a minimum wage and pensioners whose pensions do not exceed the equivalent of the minimum wage, so as to ensure they remain tax exempt notwithstanding the increases in their wage or pension resulting from the measures announced in this budget. The Government will be giving a cost of living adjustment of €0.58 per week, a total of €30.16 for the whole year.
A one-time non-taxable additional bonus of €35 will be granted to employees who will not benefit from the income tax reductions that will come into effect in 2015. The bonus will also be granted to all pensioners, persons in receipt of social benefits and, on a pro-rata basis, to part timers and students. The board would like to notice with satisfaction that this extra bonus would not be forked out by employees for workers who are employed by the private sector, but will be borne by the Government in order not to add an unnecessary weight on the private sector.
Upon referring to Social Protection as a whole, one needs to keep in mind that instruments such as pensions, unemployment, sickness and disability benefits provide an insurance function to mitigate the impact of such risks. In addition to cash benefits, the welfare state provides a number of in-kind benefits that are important from a social justice point of view, such as education, health & long term care. The EARB feels that the government was not clear in the budget regarding the social housing costs, since in his speech the minister failed to mention that such renting costs would be increased to a detriment to the most vulnerable people in the society.
We strongly believe that the government should be set on a long term plan in order to reduce the risk of citizens ending up for some reason or another, poor for their whole lifetime. Such a plan should include a holistic approach when it comes to education, which we believe is the main key to tackle poverty, provide social workers and psychological help when needed, and make sure that the monetary benefits handed out to those eligible are satisfying the need that they were supposed to fulfil.
Furthermore the government should be working on an enhanced plan in order to relieve the ever growing weight based on the local social security system. The biggest weight based on the pension system is mainly because people now live longer, however the level of elongated unemployed people is also a challenge for the system. Demographic changes, arising from an ageing population, mobility and international migration are leading to greater vulnerabilities. Current systems of social welfare have to adapt to reflect the government’s objective of creating opportunities mainly for dependent people.
According to last year’s budget estimates, the cost of social security in Malta is well over €800 million, with over €640 million as contributory benefits and almost €200 million as noncontributory benefits. Social security is the government’s most expensive program with an estimated €2.8 billion spent. The latest Eurostat data available has indicated that total social protection expenditure in Malta amounts to €1,320 million or 19.2% of 2012’s GDP.
The government has provided us with a figure that illustrates it’s spending when it comes to social security. One can easily state that the largest share of social security expenditure was on the Old Age category, with expenditures of some €601 million (8.4% of GDP), followed by sickness/healthcare with an expenditure of €392million or 5.7% of GDP.
The EARB notices that even though the government had pledged to introduce the third pillar into the pension system by 2014, up to now this has not been implemented, even though several discussions have taken place in parliament. Up to the time that this document left for printing, the parliament was still in the first reading of the bill. The board would also like to voice it’s agreement with the introduction of such an important pillar in the pension system, however it would like to draw the attention of the government, that even though this may lead to more people opting for private pension systems, however several citizens which are in the bottom scale of the earnings scale would not be able to do so. Hence, one can note that this may lead to further
discrepancies between the rich and the poor. The introduction of such an important pillar to the system would surely attract several employees, especially due to the fact that such a sum collected upon retirement age, would be tax free (as being proposed by government). The board would like to propose to the government to further increase the benefits of such a pillar/scheme especially to those at the lower end of the earnings scale.
Poverty is as much about lack of power as it is about lack of money. We know that it is people’s own decisions and actions that bring about sustainable improvements in their lives and livelihoods. Inequitable power relations exclude poor people from decision-making and prevent them from taking action. Empowerment of those living in poverty is a critical driver of poverty reduction.
Despite this, there is still a vast gap between the theory of empowerment and its practice. Economic growth will not reduce poverty, improve equality and produce jobs unless it is inclusive. Economic growth also has the indirect potential to alleviate poverty, as a result of a simultaneous increase in employment opportunities and increase labour productivity. The Maltese government needs to keep in mind that increases in employment without increases in productivity, leads to a rise in the number of working poor, which is why some experts are now promoting the creation of “quality” and not “quantity” in labour market policies.
Data provided by the SILC, for 2012, revealed that persons living in households with dependent children tended to be more prone to being at risk of poverty, as opposed to those living in households without dependent children.
The data shows that Malta holds a relatively well entrenched social welfare system that actively protects those at risk of poverty. As already mentioned in previous sections, the government back in quarter one of this year, had launched a green paper which should lead to the drawing up of a policy aiming at reducing poverty.
When one compares Malta's performance to other EU members, the effectiveness of the welfare system in Malta ranks 17 out of 28 countries. This shows that the government can indeed strive forward and perk up the allocation and usage of such funds.
The Government is also proposing a scheme for those who are still in employment but have not paid enough social security contributions to entitle them to a pension, will be given the
opportunity to pay a maximum of five years from their missing contributions so that they become eligible to receive a pension. Furthermore, persons aged between 62 & 74 and have retired without a pension due to the fact that they had not paid enough security contributions will be entitled to an annual bonus of €100, if they have paid social security contributions for one to five years and an annual bonus of €200 if they have paid contributions for more than five years.
In light of the current situation of people dependent on Social benefits, the EARB welcomes the government’s initiative which enables unemployed single parents who commence employment to continue receiving 65% of their unemployment benefits in the first year of employment, which rate will be tapered to 45% in the second year and 25% in the third year.
It is highly noticeable, that thanks to free medical services in Malta, less people are vulnerable, especially the unemployed and those at the bottom of the wage scale. Reason being, that otherwise, had the medical services been chargeable, such people would not be in a position to pay for such fees. The EARB would like to congratulate the government for reducing several long waiting lists, some of which were as long as 6 years, however, further work needs to be done, as one have seen that even though the number of operations carried per day has increased, but several other waiting lists are still extensive. Moreover, the queues at the Emergency department and the lack of beds at Mater Dei are of a huge concern.
Regarding the health sector, the government proposed the increased collaboration of private – public partnerships, whereas the government proposes to collaborate with the private sector in order to improve the service at health centres and hospitals. The Government has set up a company which entered into an arrangement with Orthopaedic Specialists at Mater Dei Hospital. The parties are committed to increase the number of operations carried out during their normal working day and continue with a number of operations in their spare time including weekends. The aim is to reduce the waiting list substantially. This pilot project aims to maximize the use of operating theatres as well as the equipment at Mater Dei Hospital. Once the plans for St Luke’s
are completed, the Government will issue a call for expressions of interest so that this site is developed in a way that will prove to benefit the needs of all the society.
Social protection should be designed in such a way, that people in need at certain periods of their life cycle are able to receive from government direct cash transfer payments to deal with risks of unemployment, sickness, or injury or in responding to issues of single parenthood or family break ups.
However one can notice that it is not unusual that such support is given long term and that certain people keep on receiving such benefits for long years. This is unacceptable, due to the fact that a small percentage, find it quite comfortable to become fully dependent on such benefits and refrain from taking action to become independent, leading to a higher expenditure for the government, expenditure which might be better off used on education or healthcare.
Hence, the EARB would like to advise the government, to introduce a system whereas an unemployed worker would find it worth it to be employed, or invest in his/her human capital, in order to be in an independent position. Should the government search for ways on how to have less people depending on its’ generosity, one may suggest, that these unemployed workers who have recently been employed, may keep on receiving a part of their benefits, and have their new income for the first year, as non-taxable. The less unemployed workers, the higher the possibility of economic growth, and government revenue, whilst less people would be dependent on the benefits handed out by the government.
Malta’s constantly ageing population is a tough problem, which the government has to face. Such a problem is posing a challenge to the economic, budgetary and social aspects of the Maltese economy. Pensions, mostly the pay as you go public schemes, are the main source of income of older people in Malta. The purpose of pensions is to deliver retirement incomes that are adequate to allow older people to enjoy decent living standards and economic independence. Retired people drawing a pension are a significant and always growing part of the EU population (about 124 million or a quarter of the total). Pensions affect public budgets and labour supply in major ways and these impacts must be considered in pension policies.
The adequacy of pensions is measured by their ability to prevent poverty, the degree to which they replace income before retirement and how they compare to the average incomes of people below pensionable age. The ‘at risk of poverty’ or social exclusion’ measure is directly linked to the poverty reduction target of the Europe 2020 strategy. The figure above illustrates the pension adequacy challenge for member states by showing their position compared to the EU-27 average
for the rate of people aged 65+ at risk of poverty or social exclusion. Countries above the average are listed in red, whilst countries below the average are listed in blue.
Public pension expenditure in the EU-27 is projected to increase by 1.4p.p of GDP over the period 2010-2060 to a level of 12.7% of GDP. In the euro area, an increase by 1.8p.p to a level of 14% of GDP is projected. Yet, the range of projected change in public pension expenditure increases by a more than 7 p.p of GDP. In another three member states (Slovakia, Belgium & Malta) public spending on pensions is projected to grow between 5-7 p.p of GDP.
Life expectancy at age 65 in the EU-27 is expected to increase by around five years until 2060 (from 17.2/20.7 (m/w) years in 2010 to 22.4/25.6 (m/w) years in 2060). Rising longevity, declining fertility rates, and the transition from large to smaller cohorts of working age, present a challenge to pension achievements in all of the European Union's Member States. The demographic challenge to the sustainability of pension systems of an ageing population is no longer far-off.
As the first baby-boomer cohorts are now reaching retirement age, the population aged 60+ is currently growing by around two million each year, almost twice the increase observed in the late 1990s and early 2000s. At the same time, the number of people of prime working age (20-59) will fall every year over the coming decades as the baby-boomers are replaced by much smaller cohorts.
With people living longer and the working-age population shrinking, the adequacy of pensions cannot be guaranteed as the required increase in expenditure would be unsustainable, unless both women and men also stay longer in employment and save more for their retirement. Pension systems can help to optimize labour supply over working life, particularly for older workers, by setting strong work incentives in their entitlement rules and restricting access to early retirement. Furthermore, employment and adequacy questions are linked. Working to a higher age may help to maintain or even increase the future level of replacement rates.
If pension and retirement systems sufficiently
and
sensibly
reward
working longer and discourage early retirement they can contribute to ensuring that longer working careers become the key avenue to better adequacy of pensions. This is already the case in several Member States, but in others, these incentives are still illadjusted.
Figure: Long term growth in pension expenditure as an expenditure of GDP (2010-2060)
This government is determined to reform the justice system and to reduce excessive bureaucracy across various operational units. In order to achieve such a goal, one requires serious commitment and management expertise.
As stated in the Pre-budget document, the recommendations of the Commission for the Holistic Reform of the Justice System to the Government, to improve the efficiency of the judicial system are to be implemented over the period of 2014 to 2016. An increase in the members of the judiciary and a reliable and secure IT system in place would reduce a substantial amount of time. Adopting to present times, it would be suitable to transfer all data from manual to digital as it surely would save costs and time. The EARB believes that, introduction of night sessions of minor cases would highly increase efficiency
Moreover the government is committed on achieving a 25% reduction in existing bureaucratic procedures. A Commissioner for simplification and reduction of Bureaucracy was appointed and fruits from such appointment emerged. Yet there is still room for improvement.
“The government is committed to further encourage the increase in the rate of employment through a set of specific labour market programmes aimed at addressing particular challenges and bottlenecks which are currently discouraging entry in the labour market�. One should note that positive signs are already evident in this respect - Malta registered a decrease in the unemployment rate. In July, the number of persons registering for work stood at 6,834 compared to 7,298 in the corresponding month last year.
In its report the EU-Commission recommends the Maltese Government to continue policy efforts, to address the labour-market relevance of education and training and improve basic skills attainment by stepping up efforts on the overdue reform of the apprenticeship system.
In line with the Government’s commitment to introduce more incentives to attract more women to either return or enter into the labour market, in the Budget Speech for 2014, the Breakfast Club Service for children in Kindergartens and Primary Schools, in State Schools was announced. This scheme started to operate as at 1st April 2014. It is specifically aimed to help self-employed parents, who wish to take their children to school an hour before the official classes’ open, so as children would eat a healthy breakfast and also be supervised. This service is being provided free of charge. In the first month of service, 700 students attended daily for such an initiative and around 11,000 breakfasts around Malta and Gozo where provided. Such initiative was not to be rolled out on nationwide basis during 2014 but is expected to be phased in gradually. The main concern of MUT was that the funding was too low. The EARB believes that it would be also highly beneficial if such an initiative was introduced in secondary school where high-poverty risk is located.
Furthermore to enhance the female participation rate in the economy, the Maltese Government announced the scheme of free childcare centres. Such a scheme was valued at 3.8 million in the 2014 budget. Dr. Muscat had said the free services would lead to 3,000 additional childcare places over five years. In 2013 Dr. Muscat stated that such an initiative could yield a return of 2,600 women joining the workforce and create 500 career jobs in the next five years.
The implementation of the income tax reductions, which was announced in the previous budget will benefit a large number of households and should boost the labour market. Moreover the setting up of the Active Labour Market Policy Counselling and Action Committee was designed specifically to support the rise in the labour force participation of all groups.
The ‘Youth Guarantee Programme’, launched in March 2014, is most beneficial for individuals under 25 and aims to enhance employability amongst younger persons by increasing the number of youth who continue to study after the compulsory age and to improve their capabilities through relevant training. During an 18-week training period individuals will undertake various
work placements and vocational training, at MCAST among others. The Youth Guarantee scheme participants will receive an allowance of â‚Ź1,440.
The government has announced various new incentives, which are aimed to discourage Early School Leavers and even encourage more individuals to return to the world of work. Four students out of ten do not continue school after 16 years. Individuals under 23 will not be receiving unemployment benefit unless they join a Youth Guarantee Programme; this is aimed at improving job prospects. This measure also applies to single parents whose children are one year and older. Such measures would indirectly tackle the burden of long-term unemployment in future years. A one-time top-up, 35 euro for those who are at the lower end of the income scale will also be given. This is to compensate for this year’s low Cost of living adjustment.
Digital also plays a central role in people’s lives. The ability to communicate, learn and work through different technologies is a huge asset. It equips individuals with the abilities and knowledge to be able to participate actively in community, cultural, commercial and intellectual activities. The National Literacy Plan published by the Ministry of Education and Employment stated several vital points that would greatly benefit our economy. This is a clear indicator that this government is committed of incorporating digital literacy into our economy.
The EARB welcomes the fact that implementation of the One Tablet per Child initiative is entering the second phases. As stated in the budget by October 2016, a tablet will be issued to every student starting from the 4th Year of Primary School in State, Church and Independent schools.
It would also benefit the society more if corporation would be made with the local councils in regards with Digital Literacy and even with Long-Life Learning. If policymakers allocate more initiatives and funds for the creation of seminars, which would be organized by local councils, it would benefit local citizens greatly.
The Government has launched a series of initiatives to tackle poverty, including issuing the Green Paper for Poverty Reduction and for Social Inclusion. Furthermore it is stated that efforts to continue creating the right level of protection to young members of our society has also been increased.
The government has also extended the coverage of the Home Help service schemes. Schemes to support Home adaptations where also implemented. Furthermore the government will also be embarking on a programme of support to youths, through the measure Residential Home for Youths.
The EARB welcome the initiative of giving a supplement of 400 euro for every child coming from low-income families, whilst encouraging school attendance. Such an initiative would aid 22,000 children coming from 9,000 families.
Policymakers have long mentioned the issue that Gozo suffers from double insularity yet a sustainable and a long-term economic vision for the island was never put into effect in previous legislations. Double insularity is one of the major factors that negatively affect the movement of people, cost of imports and exports and other economic activities, which are of vital importance for the island’s quality of live and economic performance. Due to such drawbacks Gozo is highly dependent on Malta’s economy.
The National Strategic Reform Framework 2007-2013 refers to statistics showing that Gozo’s GDP per capital has decline from 73.2% of that of Malta in 1999 to 69.3% in 2003. Gozo’s GDP performance in stated to be underpinned by constraints on economic production, high transport costs, low attractiveness for investment opportunities, a large public-sector activity and a lack or absorption of technological capabilities.
Analysing the 2015 Budget, it is clear that the government is not giving up to re-generate the Gozitan economy and signs of improvement are clearly starting to take shape. Investing in infrastructural and human capital would surely bring success to such an objective. According to the government, Gozo’s identity is strength and must be promoted and enhanced. It is stated as well that the government intends to promote Gozo’s potential as a back office work location through the continuous modernization of the public sector and telecommunication services. Furthermore, government strongly believes that with the right investment incentives, Gozo can maximize its potential and continue to prosper.
However it is obvious that government cannot solely achieve such a goal. The private sector plays an important role in this regard. The government is committed to create the right environment for the creation of productive employment opportunities in Gozo and signs of trust from the private sector are also evident. RS2 Software plc. announced that it has concluded and signed agreement with the Government. RS2 will be investing 1 million euro in a new office in Xewkija and is expected to create 50 new jobs over the next three years and another 50 new jobs will be added to the rest by 2020. One recommends the government not to view such an event as only a
one-time achievement. It is the success of attracting companies alike that tackles the lack of job opportunities in Gozo, and the threatening brain drain of youths from the island. Therefore one should encourage the government to persuade other entities from other industries to open in Gozo as well. Furthermore one should also mention that an artisanal brewery furnished with state-of-the-art equipment has also been launched in Gozo, which incurred another investment of a 1 million euro.
According to the Pre-Budget document, Malta Enterprise has also announced incentives where Gozitan based enterprises can benefit from tax credits for a maximum of â‚Ź50,000 over any period of three consecutive years; further encouraging investment. The EARB welcome the fact that an expression of interest for the construction of a Yacht Marina and Cruise liner Terminal has been issued, and according to the Budget document they are now at the stage where proponents have to submit detailed technical studies. Such a project would surely benefit the Sister Island and improve its economic situation. It is stated that plans to have a modern home for elderly are underway. This is highly suitable due to the fact that Gozo is heading for an ageing population and therefore an increase in demand for such a service in the future, will surely commence.
The EARB also welcomes the fact that current studies are underway for a green/rural airfield in Xewkija. The airstrip could be used by planes, which belong to the six flying-schools operating in Malta. However one should ensure that such a project would be economically and financially sustainable in the long-term so not to have the same faith of the Xewkija heliport service and seaplane services.
The Board also welcomes the news that negotiations for the opening of the medical school in Gozo are at advanced stages. Such a school is directed to attract foreign students from which the Gozitan economy which surely benefit. Once the Bart’s School of Medicine and Dentistry is fully functional, this initiative has the potential of fostering positive synergy with the Gozo General Hospital in creating additional activities to increase its efficiency. Furthermore such opportunity could also result in new employment for medical lecturers in Gozo.
Again such a proposal was not mentioned in this year’s budget. As studies for a permanent link between the island is underway; one has to acknowledge the fact that such a measure is longterm and needs quite a number of years to be completed. However if a Fast Ferry Service would be included it would surely be of benefit in present times.
In October 2013 the Economic Affair Review Board (EARB) issued the “Pre-Budget Document The Students’ Reaction”. In this document, which was presented and discussed with the Minister for Finance Prof. Edward Scicluna, the EARB proposed an increase to such grant for Gozitans. The main reason for such an increase is, that for the majority of Gozitan students, such a grant is falling short of the expenses related to rent and transport. Moreover this grant completely ignores from the agenda other vital expenses such as water and electricity bills and telecommunication expenses, which are a basic need for students living on their own. As an organization the EARB still believes that such a grant should be revised and increased, and encourages policymakers to do so.
Furthermore the EARB welcome the initiative that the Gozitan students grant would be directly transferred to the students’ bank account rather than sent by cheque. Furthermore the EARB also believes that such a grant should be issued monthly instead of quarterly (i.e. every 3 months) as students usually pay rent monthly.
One would like to bring to the attention that in previous years, well know international language school EF, during the summer period brought its students to learn English in Gozo. Such an initiative brought with it an additional boost to the economy of Gozo in the summer season, as the number of youths in the island increased. However in recent years it halted such a service. There are over 40 language schools in Malta and Gozo, one recommends the government to encourage such institutions to do the same, as was done in previous year.
Funds for a public swimming-pool in Gozo were absent from this year’s budget. One would like to recommend the government to seriously re-evaluate such a proposal as this would surely continue to aid the Gozitan water-polo team, and would be of benefit to the general public, who want to exercise any kind of swimming sports in the winter season.
The EARB welcome the rise in stipends for all students, which will increase with the Cost of Living Adjustment. Furthermore one should acknowledge as well that stipends will now be tax-exempt.
“An integral part of the Government’s vision is to offer first class education which is open to all. It is this Government’s firm belief that sound education and training are key to success at work and in society at large.”
In last year’s report, the EU27 commented that the launch of a preparatory process leading to an Early School Leaving strategy is positive and should yield results, ensuring that Malta’s percentage of early school leavers would be lowered to the 10% benchmark by 2020. Figures for 2013 show that the ESL rate stood at 20.9% proving that improvements are still needed to be made.
Minster for Education and Employment Hon. Evarist Bartolo, warned that the greatest challenge is not youth unemployment but the number of youths lacking basic skills. The EARB welcomes the initiative by the present government, regarding the SEC revisions classes. Such a measure would highly benefit low-income households. However, some believe that it is more important that one would focus on measures so as students would not fail their exams in the first place rather than drawing up incentives for students who fail. According to the Minster 1,373 students applied for the SEC revision classes and the attendance rate stood at 68%. However the number of applications represents 60% of students who failed their O level exams. Therefore one recommends policy makers to target the remaining 40% and encourage them to continue their studies. Furthermore in the coming years, the EARB believes that the country should start a discussion on whether the obligatory school leaving age should be extended from the age of 16 to 18.
One should note that in the United Kingdom as at from September 2013 the education leaving age rose to 17 and from 2015 it will rise again, to 18. The UK government opted for the raising of the leaving age because research showed that young people who carry on learning or training until the age of 18 earn more money, are likely to be healthier and less likely to be in trouble with the police. So in essence it’s worth thinking carefully about the benefits of carrying on. However one might state that merely by extending the age without offering a holistic educational programme, which caters for different abilities, would be completely useless.
According to an external observer from the University of Nottingham, Professor of Education, Roger Murphy; short school hours, undue emphasis on academic knowledge and lack of professional development training for teachers seem to be the major shortcomings in the Maltese education system. However the Minister dispelled the suggestion that the government is looking towards extending existing school hours, insisting that the solution lies in better use of existing school hours, especially at primary and secondary levels.
When comparing the UK educational system with that of Malta the major difference between the two educational systems crops up when we compare the summer holidays. In the United Kingdom summer holidays for primary and secondary education students consist of six weeks, usually starting from mid-July till end of September. On the other hand Malta’s summer holidays consist of a 3 month period, starting from end of May till end of September, i.e. double that of the United Kingdom. This implies that the United Kingdom’s academic year is more spread out throughout the year. Therefore teachers in the United Kingdom can spend more time on a hard topic making sure students understood it and plan the syllabus more slowly and carefully than teachers in Malta for the benefit of their students.
Roger Murphy also made reference to a 2011 European Commission study on private tuition in EU countries - THE CHALLENGE OF SHADOW EDUCATION - Private tutoring and its implications for policy makers in the European Union. This was an independent report prepared for the European Commission by the NESSE network of experts.
In Malta a 5% sample of Grade 10/Fifth Formers student undertaken by Vella and Theuma (2008) found that 51.9% were currently receiving private tutoring and that 78% had done so at some time in their school lives. A decade earlier, Fenech and Spiteri (1999) had surveyed 1,482 upper primary and lower secondary pupils and found that 50.5% had received private tutoring at some time. On the other hand, a 2008 random telephone survey of 1,500 parents in England found that only 12% of primary school pupils and 8% of secondary school pupils were receiving private tutoring (Peters et al. 2009: 2). This study concluded that this was having a negative effect on Maltese students because it was restricting their leisure time in a way that is “psychologically and educationally undesirable”. These high percentage rates may be the implication of short schooling hours in Malta – Private tuition is probably a way for student to catch up on topics that they did
not fully comprehend at school. According to Murphy, “It is creating a climate where it is acceptable that school is not enough”.
Furthermore it is putting students who are coming from low income families at an unfair disadvantage, as their families would find it difficult to pay private tuition and would deprive them from attending. This would ultimately lead to lower grades – and therefore a lower result in the level of Maltese education when compared with that of other countries.
Furthermore compulsory education needs not only to be invested in, but also restructured and modernized. The investment of capital in schools might not guarantee efficiency and effectiveness of the necessary levels. Early school leaving must not only be addressed through the broadening of the students’ study spectrum, but also throughout the introduction of new teaching methods as well as vocational subjects in addition to compulsory ones. Therefore the EARB praises the fact that The Ministry of Education will be launching a pilot project of five vocational subjects with local programmes, which will form part of the examination for the Secondary School Certificate (SEC).
The EARB also welcomes the fact that Research Activity in the University of Malta would be increased. As stated in the Budget; Funds would increase by 55%; from 4.5 million to 7 million. Furthermore one also acknowledges the fact that VAT on e-books is also reduced from 18% to 5%.
According to the Minster of Education and Employment the problem in our educational system is further aggravated by the “ridiculous and obscene” problem of absenteeism, with many students believing they are entitled to three days of ‘leave’ per month. Some children ended up missing out on one third of their scholastic year.
Skiving at secondary school level was a direct reflection on the educational experience offered. The Minister stated that it’s not about how many chairs we fill but what educational experience we’re offering. Policymakers should therefore help students by making the school environment a more enjoyable experience so as to prevent children ending up Early School Leavers.
Furthermore parents should also be well informed if their children are truanting school. In 2009 parents who had their children attending the Birkirkara primary school were notified through SMS in real time, that is, if their spouses failed to show up for school. This opposed the previous system, which informed parents two days after their children missed class. The EARB believes that such a policy should also be implemented in all Secondary Schools and even in Junior College, as students attending such institutions are more likely to be skiving school rather than primary students.
The EARB would also like to recommend that more attention would be given students whose parents cannot read and write. According to the “Census of Population and Housing 2011: Final Report”, the ages from 30 to 59 make up for 16.9% of the illiteracy rate. Targeting their children and giving more attention to them in a comfortable environment would also benefit the society greatly, as it would act as a precaution for such children not to leave school at an earlier stage.
In our view the healthcare system requires both elements for the assurance of quality access and sustainability. One needs to bear in mind that the Healthcare system makes up a substantial part of our GDP and thus it is vital to ensure fiscal sustainability of public expenditure, on health-care. The present government is a firm believer that free good-quality healthcare is a right to all citizens.
According to the 'Health System in Transition': Malta Heath System review’, life expectancy has steadily increased over the past 20 years and this compares well with the EU average. In 2011, life expectancy at birth was 78.4 years for men (compared with 77.4 years for the EU as a whole) and 82.6 for women (compared with 83.2 for the EU). Due to demographic changes, and the fact that we have an ageing population, there is an increasing demand for healthcare and pharmaceutical good year after year. Therefore such factors will continue to pressure further the expenditure on healthcare, and even the expansion of such related sectors.
The right allocation of resources and efficiency in this sector is always of a concern to policymakers. As stated in the pre-budget document the government is committed to continue investing in the overall good governance of the public health service, thus focusing on better leadership, management and co-ordination of policy, services, supplies and resources.
One should note that the total health expenditure as a percentage of gross domestic product (GDP) was 8.7% in 2012. This is below the EU average of 9.6% (WHO 2013: HFA). Of this, a third is private spending (2.9% of GDP, compared to 2.3% in the EU); public spending was only 5.6% of GDP, below the EU average of 7.3%. In recent years the increase in private spending has outpaced public health expenditure growth.
In the pre-budget document it was also stated that a clear cost-effective National Health System Strategy (NHSS) for the period 2014-2020 was published for consultation in February 2014. There have also been reviews of the medicines and medical device procurement, management and distribution processes in order to streamline procurement practices and cut wastes. Furthermore work on the implementation of policy and strategy document issued in the past years such as the National Cancer Pan, A strategy for the Prevention and Control of NonCommunicable Disease in Malta and A Healthy Weight for Life and National Strategy for Malta
have continued. This proves that the current government is well committed to arrange current inefficiencies in such a sector.
One of the issues that have been in the centre of controversy is the total amount of medicine provided by the government that still remains out of stock. One asks if there is a proper real-time stock taking system in place to avoid such undesirable situations. Furthermore investment in the health sector needs to be strengthened, especially in the emergency department at Malta’s main hospital. One suggests that ambulances would be wide spread in different locations in Malta and Gozo for a faster response in emergency cases. Another important, and much needed revision needs to take place in various policlinics around the island. Investment in such clinics would decrease the workload in the Emergency department, especially for small injuries.