Robert Abela said he will be proposing that in the span of five years, medicine which pensioners usually buy, will be given out for free- costing around 40 million euros
In discussing this proposal, one needs to remember the existing situation. Already, a good number of pensioners and other citizens receive free medicine apart from the free healthcare we are entitled to. This alone, in its broadest sense equates to over a billion per year of government spending. What the proposal is arguing that all medicines are given to pensioners for free. There is no such thing as a free lunch, and even free goods have a resource and opportunity cost to them. There are a number of key considerations to make when analysing this proposal which is yet not detailed enough:
• Public finance - the cost of the medicines will be paid by public coffers. Although over the past few years Malta is running a surplus, this is not guaranteed going forward. Economic growth will pass through cycles leaving less money in tax revenue when growth slows down and the funds provided by the various citizenship by investment schemes are also expected to diminish. Therefore an analysis of from where will an additional €40 million be raised needs to be undertaken.
• Future requirements - with an ageing population and longevity expected to continue increasing, the demands on our public healthcare will be on the increase and so on the required medicinals.
• Nudges - one of the main aims of policy initiatives is to nudge behaviours of targeted cohorts. A key tenant of public health is prevention. Given that the medicines will be free, it will become crucial for enhanced prevention strategies across the population. It would be good to also see what is being proposed and costed in this regard.
• Quality of medicines - it is also pertinent to consider on the quality of medicines being given, will these be the same patients usually buy or will they become generics or similar drugs?Medicine use - Malta is already known for its high use of antibiotics. A concerted effort to reduce this is needed irrespective of whether medicines are free and even more so if they do.
• Abuse - it is known that in general there is abuse of the health system, especially in the use of free medicines. What is being proposed to reduce abuse? Will there be harsher penalties and more stringent enforcement? If yes, what is the cost of such measures?
• Administration & logistics - more detail needs to be given on the logistics of the system, whether it will be an extension of the POYC scheme. If yes what additional resources are needed to support this extension?
• Eligibility - one also needs to look at whether the all pensioners would be eligible for such a measure or just the vulnerable within this cohort. A related discussion on the affordability of pensions and the completion of the pension reform needs to be concluded and be part of such a proposal.In assessing a policy proposal, it becomes critical to view all elements and implications. Also, a discussion on the alternative uses of the projected €40 million should be undertaken. Is it more beneficial to society to introduce more screening programmes or programmes to entice healthier lifestyles? Many a times, the cost of any proposal is much more than the direct cost and that is why we need to start moving towards a cost-benefit analysis of policy proposals.
On the topic of housing: instead of building on virgin land, a new state led entity would invite owners of vacant property to sell them to the government at market values. He said that the target would be to reach 4,000 units first with the order of preference being according to the degree of maintenance required. He said that the estimated market value of these 4,000 properties is of 600 million euros, with refurbishment expected to cost another 260 million euros. Will such a proposal work?
Over the past few years, property price growth outstripped wage growth and questions on the affordability of housing were raised. This, amongst other factors, has caused an increase in the demand for social housing. On the other hand, there is a stock of vacant property which is a dormant economic resource. Once again, a number of considerations need to be made in view of the proposal:
• Demand & supply model - Malta requires a demand & supply model of housing which will also inform spatial planning policies including the number of permits granted. We need a model which is based on demographics as well as statistics on actual properties that are vacant
• State as a buyer - this can distort the market by creating an artificial demand and support property prices
• Incentives - the Government has a number of policy tools at its disposition including the imposition of taxes on vacant properties to penalise the hoarding of assets and letting them fall into dilapidation
• Public finance - a key consideration is the financial impact on Government coffers. How will this be financed? Given the excess liquidity, bond issues might be an option however there is a debt servicing obligation going forward
There is no doubt that there is a significant stock of vacant property in Malta and with a high proportion turning into dilapidated state. There is also a need for regeneration efforts to not only reduce the pressures on utilised land but to also serve as a social and community revival mechanism. move away from taking up undeveloped land for the purposes of housing. Although the principle of using vacant housing is good, there might be other models of formulating this and turning it into reality such as public private partnerships whereby the Government will work hand-in-hand with the private sector to provide social housing by not necessarily buying the property itself.
No more cheap labour: Abela said that low-paid jobs cannot be below the minimum wage, and that cheap labour would no longer be acceptable as it is distorting the labour market. Abela suggested that employers will not be given the permit to import foreign workers if all their employees are not paid their deserved wage. How could this play out for our labour market? Will businesses stop investing in foreign workers as they would refuse to pay more?
There is no doubt that the Maltese labour market is very buoyant at the moment. With virtually no unemployment, Maltese companies had to resort to foreign workers to sustain their demand for human resources. This influx has also suppressed wage growth in some sectors. Although this is part of any economic upswing with limited resources, the question needs to focus on the employment conditions of the foreign workers. Do the wages they currently receive allow them to live in Malta? The surge in property prices, especially rental, has definitely suppressed their disposable income and we have heard numerous cases whereby multiple foreigners are living in one apartment. Given that work needs to bestow dignity on the worker, it is important that the Government intervenes to ensure that there are no such cases of exploitation by the labour market. Enforcement with penalties becomes an important deterrent to ensure that the dignity of workers is withheld. These are not the exception and not the rule and therefore such measures should not heavily impact the Maltese economy.
Abela had made statements that he is concerned about Maltese businesses because there is an unfair advantage in favour of foreign companies who benefit by paying 5% tax. As an economist, what is your opinion about the 5% tax rate and Abela's opinion?
Malta's tax rate framework and incentives have been an important instrument in our investment attractiveness and in creating economic wealth. The tax rate for Maltese and foreign companies is at 35% however when foreign owned companies satisfy a number of conditions, a process of refunds gets underway. Such a mechanism has been a critical element in attracting investment, generating jobs and wealth and also increasing tax revenues. It is a system which has been accepted by the European Commission and OECD. There are numerous ways in which governments can also support local businesses through various tax incentives and credits which have been crucial in supporting investment and job creation. Like any policy proposal, a cost-benefit needs to be undertaken to study the complete effects of such a policy move which will also impact the sustainability of public finances. This notwithstanding, the government can look at a number of ways to support Maltese businesses through other measures. In addition, in view of international developments it is also necessary for the country to have an in-depth discussion on the future of tax policy and its implications on Malta.
Fearne has pledged to increase children's allowance benefits by €2.5 million.
One of the main aims of any government is to redistribute economic wealth through various initiatives. Social payments including children's allowance are one such measure that are aimed at protecting the vulnerable cohorts in society to ensure that they can afford a basic standard of living. The Government has in its Budget for this year already supported the people on such fixed-incomes and therefore this measure is in line with such redistribution policies. What is important to note is that such policies depend on the public finances and although Malta has been registering healthy surpluses over the past few years these are not guaranteed. Therefore, when discussing social welfare initiatives it is their sustainability that needs to be assessed and kept in mind.