Welfare state could ‘collapse under its own weight’ – think-tank
Today Public Policy Institute forecasts €192 million deficit by 2015
Raphael Vassallo
The Today Public Policy Institute, an independent think-tank sponsored by MaltaToday, has raised the alarm over a possible collapse of Malta’s social security system, unless serious action is taken to mitigate astronomical present and future costs.
In a detailed report on the sustainability the current system, the institute warns that if the status quo is not revised with a view to improving sustainablity, “the system (will) most likely collapse under its own weight.”
According to figures released by the National Statistics Office (NSO) in April 2006 and 2008 respectively, recurrent revenue derived from social security contributions increased from €377 million in 2000 to €480 million in 2007. On the other hand, recurrent expenditure on social benefits amounted to €409 million in 2000, increasing to €572 million in 2007. Over the period under review revenues rose by 27%, in contrast to the increase in expenditure which rose by 40%.
Despite the gap between contributions and expenditure, the current system’s sustainability is ensured through the injection of funds derived from other sources of government revenue, amounting to 50% of the total contributions collected throughout the year.
Nonetheless, given the decreasing revenues and the accelerated growth in expenditure, a surplus of funds is no longer expected past 2011/2012. In fact, the extrapolation for year 2015 shows a shortfall of funds to the tune of €191,950,000, a far cry from the surplus of €156,403,000 in the year 2000.
Authored by Joseph F.X. Zahra, together with Sina Bugeja, Joseph Sammut and Jacques Sciberras, the TPPI report describes the current direction of the social security system as “unaffordable and unsustainable”.
“A superficial analysis of the various actors and factors that influence social security reveals an uncertain future for Malta’s system: a future where the system’s suitability, sustainability and efficiency would justifiably be questioned by government, enterprise and society at large,” the report states.
Apart from efficiency and sustainability issues, TPPI also questions whether the social services themselves are meeting the demands and requirements of today’s Malta.
“Changes in the social dimension exert pressure on the system’s make up, and question the suitability of the services being offered. As Maltese society changes over the years, so do the demands on Malta’s system.”
Observing that the approach to date has always been to accommodate the general public through the expansion of the system, the report concludes that the burdens added to Malta’s administrative and financial resources may threaten the continued existence of social services as a whole.
“Political expediency cannot any longer be allowed to come in the way of necessary reforms, as this would only make the situation worse for future generations,” the report warns.
“Despite warnings made along the years that the socio-economic consequences of the ageing population and other demographic trends were not being sufficiently addressed, successive governments have persisted with reactive policies that have merely mitigated the effects of such developments, without taking sufficient measures to improve the sustainability of the system.”
Additionally, increased bureaucracy in the system leads to inefficiencies, dissatisfied clients, as well increasing the potential for abuse.
The conclusions drawn from this analysis clearly indicate that the tensions on the system’s financial health are real and immediate. The report also explores whether similar situations are being faced across the EU, and how these are being dealt with.
In Europe as in Malta, there is a “public policy challenge in the form of a need to conceive and implement economic and social reforms that bring about economic adaptability and greater social protection,” the report indicates. “Ineffective labour market and social policies are a threat not only to the European Single Market, but also to the European currency.”
Additionally, inflexible market systems that hinder the flow of financial, physical and human capital are incompatible with the requirements of the needed structural reforms. This exercise is defined by some as a ‘recasting’ of the ESM, where social security systems are revamped, or ‘reset’, with a view to enhance the ESM’s effectiveness, whilst remaining true to its core values.
Drawing on the findings of relevant studies at an EU level and the so-called ‘EU Social Model’, the Maltese welfare state – together with a number of other EU member states – can clearly be seen to be numbered amongst those systems which are both inefficient and unsustainable.
Having defined the need to reform and improve the present system, the report then develops the concept of ‘Dynamic Social Security’: a philosophy which embraces the traditional values of social security systems with values which are typically championed by a wider representation of stake-holders including those of the business sector.
Animated by the values of ‘Dynamic Social Security’ and the prevailing circumstances in Malta, the report recommends that the vision adopted for such a reform would favour a complex social security system that offers personalised services and involves the non-state sector to a higher degree than at present.
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