12 July 2006

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Business Today

MLP will not divulge Chircop’s pension report

James Debono

The Labour Party will not divulge the contents of opposition spokesperson Karl Chircop’s pension reform report, limiting itself to a four page reaction denying the existence of a pension crisis before 2025 and delaying reform till 2011.
But the delay proposed by the MLP risks undermining Malta’s international credibility said leading economist Prof. Edward Scicluna.
“The government has spent 10 years preparing for this reform. The international credibility of the government and the economy is at stake; it is unthinkable that this would be postponed further,” Scicluna told Business Today.
Yet despite mounting criticism that the Malta Labour Party is simply evading the issue for electoral purposes, the party will not be divulging the report prepared by opposition spokesperson Karl Chircop.
On Saturday, at a press conference addressed solely by Alfred Sant despite the presence of the deputy leaders and Karl Chircop, the party presented a four page ‘document’ that contained no concrete proposals.
Talking to Business Today, Chircop insisted that his report was merely a platform for inner party discussion, which was followed by 10 other meetings during which other reports were consulted.
“I cannot divulge the contents of the report. What I can say is that many things in my report were accepted. Next week I will address this issue in detail in the 90 minutes, allocated to me in the parliamentary debate,” the opposition spokesperson told Business Today.

Labour broke a decade of silence on pensions last Saturday by saying that there is no crisis after all.
The Opposition’s reaction to the government’s proposals is to launch yet another consultation period in three years’ time and enact a reform after 2011.
According to the MLP four page reaction “no crisis appears likely to rise before the years 2025 and 2030”, countering strong indications that the ageing population will put more pressure on public finances at a time when the number on employees is on the decline and the baby boom generation is retiring.
Sant said raising the retirement age to 65 was an arbitrary measure opposed by his party.
The party’s official reaction says nothing about the government’s sketchy plans to introduce the second and third pillar pension schemes
It also says nothing about the proposed measure to scrap the present mechanism whereby one’s pension is calculated over the best three years of the last decade worked and span it over four decades instead for both employees and self-employed.
Neither does the MLP’s four-page reaction assess the impact of the proposed delay on Malta’s international credibility.
Prof. Edward Scicluna yesterday said that the importance of the current pension reform is tied to Malta’s public finances’ credibility, warning that the debt to gross domestic product ratio would be going down to below 60 per cent in the medium term future.
He also noted that the European Union, the International Monetary Fund and the rating agencies are all very keen to see whether the government would credibly start a public finance reform, which includes pensions, health, tertiary education and social security.
“It is a psychological and perceived issue, but with real economic repercussions,” said Scicluna.
According to Scicluna it is not only the MLP which is ignoring advise by the International Monetary Fund but a delay will only further undermine Malta’s credibility.
Scicluna said that for “obvious social and political reasons” the government is ignoring the economic advice given by the IMF, as it wants to exempt from the pension reform all those employees who are older than 54 years.
“Delaying the reform by say 6 years would not affect one iota the current and short term future public finances,” Scicluna said.
But delaying the reform risks making it impossible for a future government to exempt people over the age of 54.
“Taking the present government proposal as a benchmark, if the reform is postponed by say 4 years, a future pension reform would only be able to exempt those who are over 57 years,” warned Scicluna.
The need to reform the pension system now was also raised by Middlesea Insurance chairman and chief executive Mario C. Grech in an interview published in Business Today last week.
Speaking before the MLP’s declaration that it would vote against the proposed reform, Grech had already warned that it might prove difficult to achieve the desired social and political consensus. But he also spoke on the “merits in taking appropriate action now”, as these reforms would become necessary at a later date. According to Grech strong leadership and direction by policymakers is required to create the necessary culture change.
Yet despite the concern of economists and financial operators that delaying reform will only worsen the situation, Chircop yesterday insisted that we should not panic and rush on pension reform as we still have plenty of time to embark on a more holistic reform of social benefits.
“Judging from the balance of payments in 2004, we still have a surplus; at least when only contributory pensions are taken into account.”
He rebutted criticism that the MLP is simply evading the issue for sheer electoral gain.
“As a responsible party the MLP disagrees with pension reform at a time when the economy is not growing enough.”
Chircop insisted that what the country needs is a comprehensive overhaul of the social benefits system, which is only practical when the economy starts growing steadily by four per cent.
The MLP’s spokesperson insisted that the mathematical workings in his report show that the government’s proposals will benefit higher income earners while penalising lower income groups.


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