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The MLP’s anonymously written 47-page economic and social regeneration plan is a blend of ambiguity and detail as Kurt Sansone finds out in this analysis
The report commissioned by the MLP entitled ‘Towards an economic and social regeneration plan’ was drawn up by a panel of anonymous experts. It addresses a number of economic and financial issues within a wider social context that recognises society’s evolving needs and aspirations.
Pensions
On the issue of pensions, the report is much in line with what Alfred Sant has been saying for the past year that the sustainability of the current pensions system will not be threatened within the next two decades. It gives rise to speculation that this part of the report may have been written by the Labour leader himself or people close to him, only that the arguments are presented more logically and backed up by statistics.
The report states that what could be at stake is the quality of life of pensioners if their maximum income remains pegged to a ceiling of under Lm4,300 yearly. As time passes, more and more pensioners will be receiving much less than two-thirds of their annual wage if the maximum limit is not scrapped.
The report says that it will be pensioners that will be facing a financial crisis, rather than government in the longer term. It also identifies a diminishing workforce because of lower fertility rates as a major problem. The report argues that increasing the work force in the private sector from 40 per cent of the labour supply to 45 per cent by 2060 should suffice to ensure a system whereby pensioners take home a better financial packet.
The document suggests an increase in the workforce by encouraging more female participation in the economy. It also says that a positive contribution can be played by regular tax-paying working immigrants, who could boost the waning workforce.
The document pours cold water on the idea of having obligatory private pensions. Quoting various international economists it highlights the volatility of such systems and argues that a government administered system would work best in the Maltese context.
Within this framework the report suggests the creation of a pension fund into which each person’s social security contribution is invested. The fund would not be used to supplant government’s recurrent and capital expenditures and would be administered in conjunction with the social partners. This would ensure a lower risk factor, a guaranteed return and less administrative charges.
Working mums
The report dwells at length on the need to encourage more women to engage in productive labour.
Quoting comparative statistics with other EU member states, the report highlights the plight of Maltese single mothers and the relative poverty most of them are in either because they are unemployed or else because they have low-paid jobs. This is primarily caused by lack of affordable child-care facilities and the fact that most single mothers do not continue with their education. Without entering into specific details the document argues for a radical change in government policy towards single mothers and insists the emphasis should not only be on social assistance but also on the opportunity for single mothers to engage in productive work.
This part of the report is much in tune with the political discourse of Britain’s Labour Party, which launched a host of family-friendly policies in April 2003 primarily aimed at helping parents cope with their work and family obligations.
The document recognises the changes Maltese society has gone through over the last 20 years and argues for a system whereby more women are given the opportunity of seeking productive employment without reducing the chance for the family to have children and care for its elderly.
The document says that more female participation in the workforce need not necessarily translate into a lower fertility rate. It quotes the Danish example where the fertility rate has actually gone up over a 20 year period despite more women going out to work. The report states that in Denmark maternity has no impact on employment because of access to affordable child care facilities apart from 30 weeks of paid maternity leave.
The report makes no suggestion for paid maternity leave entitlement to increase (the current situation entitles a mother to 13 weeks of paid maternity leave) but suggests a voucher system linked to child-care facilities, which are given out to parents. Without delving into detail the report also says that government can give incentives to employers to create child-care facilities for employees.
Education
With the decline of the manufacturing industry that required low-skill employees, most of which were women working in the textile industry, the document insists on the importance of more students taking up post-secondary education. Education is a central theme to the regeneration plan and is considered to be a long term investment in the economy by the writers of the report.
The report argues for a “leap in quality” in Malta’s production capability by aiming for value added services and industrial production. “If we do not manage to cater for this type of new production, increases in wages would not be possible because they would erode our competitiveness,” the report states.
It argues for a more flexible and educated workforce to face up to modern-day realities. In this sense the report tries to instigate the Labour Party to move away from targeting solely its traditional working class, low-skilled voting base. Within this context the report suggests an education system more in tune with the needs of the country. It suggests positive discrimination in favour of those students who choose to further their studies in areas required by the country. This smacks heavily of what Dom Mintoff wanted to achieve in the seventies and eighties with university courses more attuned to the country’s needs.
The report also suggests replacing the current stipend system with Individual Learning Accounts (ILA). The system would entail government paying out a sum of money into a personalised account on the birth of a child. The money will only be transferred to the child later on in life if s/he continues studying at a post-secondary level. Those who do not further their studies will lose the money.
This is another proposal that finds its roots in Tony Blair’s decision to introduce baby bonds upon the birth of every child in Britain, which would mature until the child reaches 18 years of age. However, the MLP document’s suggestion only links ILAs to the stipend system and no reference is made to Children’s Allowance and whether this should be scrapped or replaced by the ILA scheme.
Addressing the unemployment issue, the report argues for a restructured Employment and Training Corporation geared towards creating new training schemes to encourage those registering for work to improve their skills.
And in a somewhat radical proposal to make the unemployed less dependent on welfare, the report suggests that unemployment benefits should be gradually lost for those who refuse job offers or do not attend training courses. Such a measure has been introduced in Germany and Britain amidst controversy over how ‘socialist’ it is.
To mitigate matters the report also proposes an entry level income tax rate lower than 15 per cent for lower paid jobs so as not to discourage people from entering the labour market.
Government finances
An important element underpinning the need for a regeneration plan is the need to control public finances and reign in expenditure. The report states in no uncertain terms that a government shackled by high deficits and rising public debt has little leeway in terms of social spending and other productive investments.
The document criticises government’s convergence report for identifying capital investments and social services as areas where expenditure must be controlled. In typical Labour language the document slams government for wasting money on parties, travel and consultancies. It says that better control in these areas and scrutiny of newly-founded authorities and agencies should help reduce expenditure to more manageable levels.
The report talks of a public sector that needs to improve but stops short of identifying adequate staffing levels and whether the number of civil service employees should drop. It also makes no mention of the summer half days, which are a shackle for business and the general public.
The document argues that duplication of work between authorities and government departments should be stopped and insists for more accountable management in the public sector.
The usual rant about trimming bureaucracy and reacting dynamically to the needs of the general public and businesses also finds its place in the document.
The market
Addressing general economic problems is probably the report’s weakest element. While providing what could be deemed to be an accurate analysis of the current situation backed up by statistics and comparisons with other EU Members, it falters when it comes to concrete proposals on wealth generation.
With economic growth languishing at around one per cent for this year and little prospect of getting much higher than that in the next few years, the report offers little in terms of innovative measures, projects or policy direction to address the current situation.
When dealing with competition and trade, the document has some interesting aspects, reminiscent of Labour’s pre-1996 bridging exercise with the business community.
It talks of an “active competition policy” that “attacks monopolies.” The report criticises monopolistic practices and anti-competitive behaviour that hound industry and consumers alike. It however stops short of criticising the cargo handling monopoly at the ports, for long a thorn in the side of importers and industrialists, and the excessive port charges induced by archaic work practices by various other port entities.
The report talks of encouraging enterprises to take on parallel importation so that the market would experience more competition and consumers would stand to benefit from better prices.
The language used is typical of a leftist party going right by championing the free market. However, the argument for competition is given a ‘leftist’ dress by saying that a well-regulated and level-playing field would benefit consumers.
On the issue of property the document says government should ensure that the property market functions correctly and without speculation. “To control excessive demand, a tax on additional properties should be introduced,” the report suggests. It does not explain what “additional properties” means.
The document also suggests that the financial regulator should evaluate the excessive credit being given to contractors and certain property buyers. The document bravely targets the construction industry and says that the unreasonable investment in property is reducing the opportunity for investment in more productive and dynamic activities that are the backbone of the economy.
Taxes and bonuses
The report says that increased taxation has stifled the economy and has contributed towards a cash flow crisis. It says that taxation should be trimmed to give the economy breathing space to grow but stops short of saying how income tax or VAT should be structured to be less of a burden.
Arguing for lower taxes may be a vote catcher but in reality government still needs to ensure a steady revenue stream, especially if the social proposals in the same document are implemented. To go round this conundrum one may argue in favour of shifting the burden of taxation from productivity and wealth generation to consumption and pollution. But little is there in the document to suggest a clearly stated policy in favour of such a shift rather than an impossible to achieve reduction in taxes. The only hint is given when the property tax is mentioned.
At the same time, the report writers stress a relentless fight against tax evasion without however suggesting any concrete measures to achieve positive results.
A controversial suggestion is the removal of government bonuses by transforming these from a financial donation to employees into a contribution towards a fund for the protection of citizens. The report says that the bonus has little if any impact on the purchasing power of employees and the new fund would be used to dish out financial assistance to disabled individuals and those who suffer from catastrophic illnesses such as cancer. Whether employees will agree with the report’s conclusion on the impact of the bonus on purchasing power is another issue altogether.
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