18 January 2006


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Business Today



Consumers saving less to keep up spending power

James Debono

Between 2003 and 2004, household savings took a nose- dive from Lm47.6 million to Lm12.1 million, a decrease of 75 per cent in just one year. Concurrently, disposable incomes also fell from Lm1,172 million to Lm1,165 million.
And according to economist Prof. Edward Scicluna the drop in savings is an attempt by households to keep on spending as before, despite the fall in disposable incomes.
The figures were published in parliament after a question by Labour MP Karl Chircop.
Talking to Business Today, Prof. Scicluna said: “The reason why household savings fell both in absolute and relative terms, is that households are trying desperately to keep to their past consumption patterns by saving less or borrowing more.” Yet statistics on private consumption show that households have not always succeeded in keeping up with past spending patterns.
Scicluna noted that in 2002 and 2004 private consumption, in real terms, fell too.
“Perhaps what further dulled the consumers’ outlook is the fact that the fall in consumption was aggravated by the significant increase in indirect taxation which nibbled further into their private consumption.”
Asked by Saviour Balzan during last Monday’s edition of TV programme Int X’Tahseb Prime Minister Lawrence Gonzi acknowledged that the introduction of the eco-contribution and the surcharge had a marked effect on savings.
The Prime Minister also attributed the decline in savings to the growth of alternative ways of saving money ranging from pension funds to buying shares in companies like Malta International Airport.
Statistics also show that disposable incomes fell between 2003 and 2004.
The term disposable income refers to incomes from all sources less direct taxes and social security contributions. Incomes include wages, dividends, property income, pensions, social security, and net income from abroad.
While disposable incomes grew by 4 to 5 percent up to end-of-year 2000, incomes only grew marginally in the following two years and fell in 2003 and 2004.
During Int X’Tahseb the Prime Minister referred to the impact of restructuring on the incomes of workers in public entities like the Dockyard.
He acknowledged that although restructuring benefited the country’s finances, it could have had an adverse impact on the incomes of some categories of workers due to restrictions on overtime.
The way forward according to Scicluna is that of raising incomes by creating more work.
“Consumers do not need economists to tell them what they personally have or not have left in their pockets. If we want to raise their morale and make them spend, we need one thing: raise their incomes by providing more work. If we put our heads together we might see it happening,” said Scicluna.

jdebono@mediatoday.com.mt



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