Every year the budget comes along and for a few days the economy, the government’s deficit and the general finances of the country become a hot topic… only to disappear from the headlines a couple of weeks later as people get all excited about the approach of Christmas. The budget this year was preceded by a heated debate amongst the social partners about the Cost of Living Allowance (COLA) and the impact of future increases in the water and electricity tariffs. Employers claimed that an increase in company overheads would lead to layoffs, while unions stated that the increases were essential to enable employees make ends meet.
The way I see it, the measures announced last Monday did not really sort out any of these concerns.
The COLA increment was set at €5.82 and will presumably help families cope with the increased cost of living. In addition to this, an assistance scheme was set up for families that consume less than 10,000 units of electricity per annum. Such families will get €30 per household and €25 for each person.
Nothing was said about what happens in the case of big families with three of four children, who probably use more than 10,000 units of electricity. My household, for example, consists of six people – and considering the six or seven loads of washing I accumulate each week, I very much doubt that I will find a €180 cheque in my letterbox! The arbitrary capping of the assistance benefit at 10,000 units is ludicrous when one considers that, according to the tariffs currently in force, a family that uses less than 1,750 units per capita is considered to be a responsible consumer, qualifying for an eco reduction on its bill. Seeing as the limit of good eco-friendliness for a family of six is 10,500 units, why should we not get the power bonus if we use 10,001 units?
If one ignores the anomaly of the discrimination against large families, these two measures sound good in theory. However, the only way we can ascertain whether the €5.82 weekly and the power bonus are sufficient to counteract the rising cost of living is to put them in the context of the utility bills we will receive next year. Unfortunately, at that point, we all hit a snag, because at this stage the man in the street has no idea what bills to expect from Enemalta and the Water Services Department as from 1 January. If the cost of electricity goes up dramatically, the €5.82 increase and the one-off power bonus for each family is going to be totally neutralised and all will go back to square one.
It does not take an economics graduate to figure out what will happen if electricity bills go up by 10% or more. Business concerns in Malta and Gozo will be hit with increased labour and power expenses and as a result they will raise the cost of their products and services, passing on their increased overheads to the consumer. This will result in a further increase in the cost of living, which will translate into another record COLA next year. So the vicious cycle will continue perpetuating itself.
It is clear that the Minister of Finance is aware that several people will be feeling the pinch in the coming months. I guess that is why he has been so considerate and removed the €16.31 levy on credit cards. I am myself a great lover of plastic money and I have more than one credit card, so I was pleased to hear that I would no longer have to fork out this annual fee for each card. However let’s face it – the main result of this reduction in the cost of owning a credit card is that more people will sign up for one, ensnared by the chimera of easy credit.
The global financial crisis was brought about because people were lured into spending more than they could afford. Credit cards, personal loans, mortgages – a number of financial institutions in countries like the US and UK engaged in predatory lending techniques that led to people taking on more and more debt. The fact that this has not happened as extensively in Malta is only thanks to the conservative and cautious attitude of local banks.
One need only watch one of the many financial advice programmes that are now sprouting on various channels to see the real danger of living a life on credit. The participants on these programmes live from one pay cheque to the next, spending more than they earn month after month, until finally the only way they can put food on the table is by paying for their groceries with a credit card.
When people become strapped for cash, they reach out for their VISA or MasterCard. They seem to forget that plastic money is REAL money. Handing over a small piece of plastic to a cashier has the same emotional impact as paying with Monopoly money – you almost feel that it is a make-believe payment. However the reality is that although it may feel painless to hand over a credit card to the cashier, there is no way of escaping the day of reckoning. The statement will arrive at the end of the month and interest will start piling up on the balance due.
I truly hope that this is not the kind of scenario that we will see unfolding in 2010.
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The budget this year was preceded by a heated debate amongst the social partners about the Cost of Living Allowance (COLA) and the impact of future increases in the water and electricity tariffs. Employers claimed that an increase in company overheads would lead to layoffs, while unions stated that the increases were essential to enable employees make ends meet.
