Edward Scicluna

Systemic failure, no doubt

The research study by Caritas Malta focusing on three categories of low-income households has managed to shock the authorities, the social partners and the Maltese society at large. It is now established that poverty is truly among us. It is no longer a matter of conjecture.

Eurostat had been saying the same for the last couple of years. But its set of high-brow technical indicators – the Gini, the S80/S20 and the P90/P10 coefficients – are not meant for the layman to digest. Another frequently reported indicator, the percentage of population at-risk-of-poverty, is supposed to be better understood. But even here we find people difficult to grasp its proper significance, couched as it is in probabilistic terms.

These indicators are provided as essential tools for policymakers in the economic and social fields. They are meant to serve as a basis for decision-making. Notice, though, that these indicators, to my knowledge, never featured, as they should have, among the main national economic targets during, say, a Budget Speech or its aftermath including meetings of the Malta Council for Economic and Social Development.

So here comes a humble though resilient NGO, Caritas, led by a highly-respected director andhis team, which is known for taking a no-nonsense business-like approach to all its work, and produced a study. In short, it can be described as a “what you see is what you get” (WYSIWYG) study.

The team entered people’s homes and noted what they observed. A basic basket of essentials: food, clothing, shelter, education and health. The basket was shorn of all other costs, which, today, most of the younger generation cannot do without: mobile phoning, use of car, travelling, cycling, keeping pets, reading and listening to music, photo taking and use of a family doctor. These were all excluded from the frugal basket.

Not surprisingly, this minimalist budget fell below the more accepted one of relative poverty defined as incomes below the 60 per cent of the national median income benchmark. Still, the result was stunning because, mainly, the statistic produced was not a mathematically derived value but one which had been observed at first hand. That value exceeded the lowest wage income earned by any one worker paid according to what could be paid by law.

Quite a full plate for the policymaker and the social partners to swallow or else to ruminate over slowly and digest.

End of story? Not quite.

The 90-page study also includes two pages that unceremoniously make a big jump and target the national minimum wage as the possible solution to this absolute predicament of the working poor. It must be said that the intention was well meaning and absolutely done in good faith. After all, it is rightfully said that the poor can’t wait.

But for the policymaker there is an obvious missing link. There are questions to be answered before the right solution is found. Basically, one must first understand what are the main contributors to income inequality that essentially are the cause of both absolute and relative poverty. Secondly, what tools are at the disposal of the government to reduce this inequality and why are they not working.

We all know that, in the absence of a government or one that merely is there to keep law and order, wages produced by the free market are the cause of great income inequalities between individuals and household. But then that is why modern society puts up with a big government with enormous tax-and-spend powers and which commands huge resources. Besides providing collective goods and services, which would not be so efficiently provided, if at all, by the private market, governments the world over aim to reduce income inequalities. These inequalities are produced by a market system that is quite efficient at creating wealth but not as good when it comes to distribute it.

On the revenue side, our government has the potential to raise €3 billion each year. Half of this amount is intentionally planned to be collected at progressively increasing tax rates (income and company tax, capital gains and inheritance tax) for higher incomes or to at least avoid being too regressive (VAT). The end objective is for the after-tax wage and income distribution to become more equitable than before the tax.

On the expenditure side, the government has an almost equal amount of resources, which, while meant to provide public services such as education and health, can, with smart planning, be tweaked to ensure adherence to equity principles. In particular, one function of the public expenditure programme, amounting to €750,000, is intentionally devoted to directly attend to the uneven needs of society, be it the family with children, the sick and the injured, the unemployed, the people with low income, the pensioners and the bereaved people.

So when we wake up one fine morning and find that we have absolute poverty around us or that the percentage of working poor is increasing, we need to ask how and why such an expensive system is failing us. In particular, how come a massive €3 billion revenue, and almost €3 billion expenditure, programme fail the very vulnerable sectors of that society it is meant to protect? A systemic failure by any other name.

We need also to look at the prices of goods and services in the frugal poor’s basket and ask why they are what they are. Are prices fully liberalised? Are the monopolies’ regulators doing their work correctly? Is tax avoidance and tax evasion doing a significant disservice to Maltese society at large?

But what about the minimum wage? Of course, we need to discuss that too. But we need to ask: Who are those people on the minimum wage? In which sectors of industry are they to be found? Why is productivity so low in those sectors? Should the minimum wage be regulated separately from the COLA system?

These are many questions. But they all deserve an answer.

 

 

 

 

 

 

– timesofmalta.com : Friday, 20th April, 2012

 

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