A year or so ago, with both euro adoption and a general election looming on the horizon, the Maltese government decided to start subsidizing the Maltese loaf once again - a retrograde step if there was one.
Now so many moons later, the government has wakened up to the fact that with the prices of cereals going wobbly and awry in the international market, such a subsidy was an open-ended commitment that it should never had entered into. One might argue that it was a temporary ploy to see us through the two events – euro adoption and the election – through which the ship of state has now passed uneventfully, or almost.
Subsidies of this nature never work. The fact that the subsidies of this nature are given to all irrespective of income and without any restrictions as to quantity tends to distort the market by creating nasty side-effects such as waste. Last Thursday ‘The Times’ reported that bakers are claiming that in the last eight years, the consumption of the Maltese loaf has been steadily decreasing. There are various reasons for this. What is sure is that there is no cheaper alternative and that no one has died of hunger. People are probably buying some more expensive alternative for health reasons – and they can afford it; otherwise they are cutting down on waste in view of the increase in price. Both scenarios militate against the subsidy that is calculated to cost taxpayers some €2.2 million annually.
If something is expensive, one is careful when buying it and how to use it. If something is cheap, this attention is not so significant - depending, of course, on the level of income and the priorities of the consumer. Using taxpayers’ money to make a consumer product cheaper than it is actually is simply bad economics.
I could not help giggling when I heard Finance Minister Tonio Fenech explain that temporary subsides to make good for a short-lived blip in the market are one thing, but subsidies on a long term and as matter of course are unsustainable unless government keeps on sponging taxpayers. The really temporary factor that was considered when the government decided to reintroduce a subsidy for bread was the political situation and not the price of flour: there wasn’t any hope on earth that this would revert back to its old level. As it happened, it has now shot up even more and made nonsense of the ill-thought out subsidy idea.
This is the libertarian streak in me coming to the surface! I wonder how MLP leadership contender, Evarist Bartolo, who described himself as being a ‘libertarian socialist’ thinks about this. Bartolo’s description of himself is an impossible contradiction - not simply a paradox – and tells much of the confused state of mind that the MLP leadership contenders seem to be in as they try to come to grips with reinventing the MLP and its role in Maltese society.
Another contender, Marie-Louise Coleiro Preca, makes no bones of her siege mentality and would, I am sure, be all for subsidies so that the working class will not have to suffer unduly at the hands of the capitalist class – or other such gibberish. Apparently the likes of her are still stuck in a time warp and have not realized that the Mintoffian ‘socialist’ methods that could have worked for some time in the past eventually lead to creating more problems than they attempt to solve.

The question of taxpayers’ money going for subsidies goes beyond ditching the subsidy for bread. Government is still subsidizing directly or indirectly a number of private initiatives. A recent report claims that Malta distributes by far the largest amount of state aid for manufacturing and other sectors within the whole of the European Union, although it is also making some of the biggest cuts, in line with EU policy.
According to this report, €115 million were distributed in state aid in 2006: 74% went to the manufacturing sector and 19% went to agriculture. The remaining three and four per cent went respectively to services – including the tourism, financial, media and culture sectors – and the transport sector.
Subsidies are not dished out to bread alone!
In this scenario, one cannot help but commenting on the foolhardiness of Alfred Sant’s electoral promise to halve the fuel surcharge levied on water and electricity consumption bills; more so since the price of oil has continued to rise to a very much higher level than it was when the promise was first made.
As usual, this would have used hard-earned money taxpayers’ money to subsidise other people’s way of life. This is not to say that the state should not help people who are really in need and cannot make ends meet. But surely doing this by subsidising everybody’s electricity consumption bill is the most foolish way of doing things, however populist and vote-catching this idea could be.
The net effect of reducing that levy is to increase the value of government’s contribution towards the cost of producing electricity while distancing its selling price even more from the actual cost of production. As usual, it is the taxpayer who ends up paying. No wonder we are so heavily taxed.
When one reads of the request from ST Microelectronics (STM) for even more state subsidy in order to save its operations in Malta, one should not forget that STM are one of Malta’s heaviest electricity consumers and that this consumption is already heavily subsidised in view of the capping of the fuel surcharge in their electricity consumption bills. This means that this enterprise is already benefiting from subsidies for their electricity consumption, subsidies that are actually paid from money forked out by the likes of you and me. Do we want – or need – to end up with yet another subsidy guzzler on the lines of Malta Drydocks in the guise of STM?
We need to rethink, and to be more libertarian in practice than in theory.