Just when you were thinking that political discourse had, of late, taken a more subdued tone, when over the span of a weekend two major economic issues reach political deadliness and the whole political class is in full gear to win over the public’s attention (increasingly difficult) and score a few political points. I am referring specifically to the 30 April deadline for comments to be made on the government’s White Paper on Pension Reform, and the government’s decision on Friday night to lock the Maltese lira with the euro under the mechanism known as ERM II. The purpose of this article is to explain the Green’s Party’s position on both issues.
In November of last year the government published a White Paper to make propositions on pension reform. Alas, during the local councils’ electoral campaign in March, the Joe Saliba / Lawrence Gonzi strategy duo decided to disown the White Paper – why? Simply and unbelievably because the Opposition had disowned the report it commissioned on Economic and Social regeneration. I can’t imagine a better example of zero-sum politics – this country is really caught between the proverbial rock and a hard place. This infantile political sport did not stop after the local council elections but reached a climax on 30 April, because, as far as I know, neither the Nationalist Party nor the Malta Labour Party submitted any comments on the White Paper – they both preferred to take a sit-back-and-let-the-others-spill-the-beans attitude on such a major economic and political development our country is facing. Alternattiva Demokratika, a party undemocratically denied political representation, plays by different rules – we never shy away from taking a position on major issues like pension reform – otherwise we could not even call ourselves a political party.
Our report can be read in its entirety on our website (www.alternattiva.org.mt). Let me run you through it.
Half our report deals with issues that should be dealt with in order to mitigate the effects that will arise with pension reform so that the social and economic effects of the reform can be minimised. For example, we recommend the need to introduce better-targeted welfare benefits to families to cope with the financial difficulties they face in the first two years of a child’s life, when income tends to fall and expenses naturally increase – a sizeable cash sum for example. If this country is able to reverse even minimally the demographic trends that are forecast in the White Paper, then the needed reforms may not be so onerous. We also make reference to the need to increase the participation rate in the labour market, particularly women’s participation, which at 57 per cent is the lowest in the European Union. Some other measures we recommend in our report are: the establishment and maintenance of a proper system of checks and balances to fight abuse and fraud, a concerted effort (including rent reform) to contain the outrageous increase in property prices so that more income can be channelled into pension funds, the establishment of a fund at the outset to cushion the impact of any unforeseen demographic changes, and the need to reduce public sector and civil service employment to release more public funds into welfare programmes including pensions.
In the second part of our report we make specific comments about the proposals contained in the White Paper. While we agree that increasing the retirement age will be inevitable in the future, we make a distinction between 65 as the eventual retirement age and 65 as the age until which people will be obliged to pay social security contributions. Therefore, while the de facto retirement age will increase to 65, we recommend that everyone will be given the option to retire at 63 and certain categories of workers (whose trade or profession makes him/her physically and/or mentally unable to work till 65) will be able to retire at 60. However, till they reach the age of 65, these “early retirees” will still be obliged to pay social security contributions. Like many other reports suggested, we agree that the entitlement to full pension should be dependent on the payment of 35 years of contributions rather than 40 years as stated in the White Paper.
As regards the introduction of a mandatory second pillar contribution scheme (in lay terms understood as publicly-regulated private pension schemes) we agree with the White Paper that this should be mandatory. However, we make an exception for those people who have a low income because it is socially unrealistic and financially inefficient to demand that these people should save beyond their national insurance contributions from the little income they have at their disposal. Comparatively, in the UK the introduction of Stakeholder Pensions in 2000 proved inefficient and cost ineffective for people on low incomes – the costs to build the pensions almost superseded the actual pension contribution.
Finally, in our report we also recommend that properly regulated financial methods should be explored to enable pensioners to supplement their pensions through the release of equity on their real estate in the form of loans, which only become repayable on the demise of the retiree and his/her spouse. In the UK, where like Malta homeownership is widespread, these financial schemes have enabled pensioners to improve their standard of living – obviously on the back of their heirs!
One Saturday morning we woke up to the news that Malta’s journey towards monetary integration was to commence on Monday. At first I was surprised, as in a televised debate with parliamentary secretary Tonio Fenech and Dr Charles Mangion some weeks ago, I was given the impression by the former that there was to be consultation on the timing of entry into ERM II. Apparently there eventually was a briefing given by the Central Bank Governor to the Opposition and a presentation was also made to the MCESD.
While that is not the Greens’ idea of consultation, I do appreciate that the decision to enter ERM II was burdened with irresponsible political behaviour from both sides of Parliament.
I am referring to the devaluation issue that the Opposition leader so foolishly decided to start in Parliament and to the politically opportunistic Prime Minister who immediately started waving that infamous two-liri a note in order to add unwarranted “scaremongering” fuel to Dr Sant’s typical “politically-suicidal” fire. If Dr Gonzi were truly the national leader he so wishes us to believe he is, he would have kept that two-lira note in his pocket, and just told the Opposition leader that monetary policy (which includes the lira’s exchange rate) is to be left in the very able hands of our quasi-independent Central Bank. The irresponsible debate on devaluation by both sides of Parliament did bring about a serious risk of capital flight – a reality that Governor of the Central Bank Michael Bonello could not admit because it would constitute a self-fulfilling prophecy.
In order to counter this risk three things were done; interest rates were raised by a quarter per cent, the registration scheme was re-introduced (again) and a covert overnight decision, reminiscent of the 1974 decision to make our island a republic, to enter ERM II was taken.
Many have asked me why Alternattiva Demokratika chose not to sound its bells loudly on Malta’s seemingly impromptu entry into ERM II. The reason is because we wish to remain consistent with the premise we have always held that, while the decision to adopt the euro was primarily a political one that was decided in the 2003 referendum, the timing and method for adopting the euro should be primarily a technical one, best left in the hands of our central bank. We could have very conveniently jumped onto Dr Sant’s doomsday bandwagon – we never considered it for a moment because we never have and we never will make any political capital out of such issues; it is fundamentally what makes us different from our adversaries. What we now will most definitely insist on is that the government embarks on a concerted and collaborative drive together with all stakeholders to ensure a smooth transition.
Some have asked me whether I am worried about the introduction of the euro. I would be lying if I say I do not have concerns; in particular I am concerned as to whether it was wise to apply such a rigid peg and whether our economic growth rate will improve in order to better cushion any shocks that may come our way. Unfortunately, only the future will tell. However, there is one over-riding factor that enables me (and should enable all of us) to sleep soundly at night. The man, who bore the major responsibility of getting our lira through the last two years of its life, is thankfully neither Dr Gonzi nor Dr Sant. That man is Michael C. Bonello.
Edward Fenech is spokesperson on Finance, Economic Affairs & Tourism for Alternattiva Demokratika – The Green Party