Is COLA adjustment enough to quash poverty?

With this background in mind, the study set out to inquire into what is currently the threshold of a decent standard of living in Malta, which could be guaranteed by a National Living Income


The man in the street regularly watches state TV announcements about a healthy economy and a recovery in tourist industry - now firing on all cylinders - all dancing to the tune of low unemployment levels.  This all sounds hunky dory, when other European states continue to register high unemployment and rising cost of living problems.

However, the soundbite from the Opposition is that the gap between those making good money (proverbial 1%) and those at the bottom is growing despite the feel-good factor of generous cash handouts during pandemic.  The question that surely arises then is: why is the poverty level (real or perceived) on the increase?  And can we sit down and take a more holistic approach to the incidence of poverty?

We were showed positive signs of an economy in the prime minister’s New Year’s public address. The first concern should be the massive leakage of early school leavers who gained no formal education and yet still expect to earn a decent wage (not easy when digitization and AI is de rigueur). Especially nowadays, untrained workers are facing higher challenges, with employers demanding higher technical qualifications to meet raising competition and digital competency.

Lobby groups complain that minimum wage is too low to sustain a breadwinner - unless he/she does three jobs on the hop. Others maintain, that if the minimum wage goes up even slightly, then sectors making heavy use of low skilled workers will report reduced profits and start shedding workers.  A higher cost of wages is therefore counterproductive and in fact adds to poverty levels.

Yet it is an undisputed fact that SME’s constitute the bulk of employers in Malta, so the Chamber of SME objects to further unsustainable increases in public expenditure resulting in millions of euro wasted on direct orders and a lax control over state procurement (particularly the post-pandemic serene feeling fanned by free cash vouchers).

Again, the Malta Employers association supports all government schemes that ensure sustainable improvement in gross domestic product once they are reflected in enhanced productivity.  It would therefore be appreciated if the Competition authority (MCCAA) comes to the rescue and undertakes independent studies to measure the true grievances of low-income workers and pensioners susceptible to slide into the pernicious poverty trap.

Can we ignore the national debt burden (as interest rates creep up). As yet, no NAO study has ventured to discover how much of this wealth was sunk in ghost entities during the pandemic. Yes, our €1.6 million daily subsidy of energy and grains is a non-discretionary policy (meaning the rich benefit equally as the poor). Hands on heart, and one cannot ignore the situation of a cash-strapped government.

All over the continent, governments are looking for ways to cut welfare bills and reduce deficits, it might seem an odd time to consider a new universal benefit. Yet the basic income, a guaranteed government payment to all citizens, whatever their private wealth is creeping onto the policy agenda.

Over the past decade, interest in basic incomes has grown alongside worries that the wages earned by workers are not rising quickly enough to match living standards.  Some basic-income supporters worry that powerful new technologies, like artificial intelligence, will make life even harder for workers. Typically, the Swiss vote on a proposal for a basic monthly income of 2,500 francs, following the success of a national petition.

There is a variant on the theme. In fact, a universal basic income, which would give money to everyone, has an alternative which is guaranteed-income programmes. The latter generally targets poor workers. Americans who fall on hard times can access a panoply of different schemes, at both a local and a federal level. There are disability benefits; food stamps; section 8 housing vouchers; Medicaid; and unemployment insurance (which is paid for and administered by states, but in crises often expanded federally).

Most of this welfare is haunted with an extraordinary amount of bureaucracy, however, and many people fall through the cracks for example, because they do not have a permanent address, or they fail to file the right forms, or they do not qualify. At district level, some governments may not have the data how to identify the people most in need.

Looking back in history, one cannot but admire reforms introduced by Otto von Bismarck, then German chancellor. He created the world’s first modern welfare state.

The system he introduced was conceived as an insurance against the woes of hardship, rather than as a natural entitlement. Over the following century, as trade unions sought a better deal, work was a central principle of organisation. Those reforms created the developed countries’ modern welfare systems: some sort of unemployment benefit, health-care provision, universal education and state pensions.

This movement led to much of the developed world, to raise minimum wages (as Malta did in the last budget).  But economists warn that minimum pay can only rise so much before employment suffers.

Rising labour costs encourage firms to look for labour-saving alternatives, an investment in productivity which might be good for GDP but would exacerbate the shortage of jobs for less-skilled workers.

It is interesting to quote from a 2022 study by Moviment Graffitti on National Rising in-work poverty. Observers claim the sudden influx of foreign workers in the Joseph Muscat “l-Aqwa Zmien” appears to have been one of the consequences of a brief economic boom.  It is estimated that between 2012 and 2017 there was an increase of 13.5% of those at risk of in-work poverty; the categories likelier to be at risk were those composed of households with a single adult and dependent children.

With this background in mind, the study set out to inquire into what is currently the threshold of a decent standard of living in Malta, which could be guaranteed by a National Living Income. It includes a nutritious low-cost diet, housing that meets local norms and common international standards of decency, healthcare, clothing, education, leisure and transport.

A gentrification malady from unbridled housing boom is the rising rents which can be a social curse particularly for tenants earning low incomes or having large families to sustain.

As always, pensioners remark that the statutory two-thirds capped pension mechanism, unless supplemented by external income, is not sufficient to help people from sliding into the poverty trap. The pink bells ring melodiously from Castille, yet the melody reaching the Sans Culotte is more nuanced.

More in People