ANALYSIS: A clear commitment to the Social Pillar

The coronavirus pandemic in 2020 caused a dramatic expansion in government-funded social welfare programmes in many countries, including Malta. But even if one looks at the 2021 figures, when COVID programmes were re-dimensioned, welfare spending still went up from pre-COVID levels.

Some might ask whether the welfare state is a free lunch. It is a free lunch in the sense that it does not lower our average incomes, but at the same time it does provide other things such as more equality and lower poverty.

A welfare state is one in which more than 20% of national income is devoted to social spending. In 2019, Malta spent 37.1% of its GDP on social protection. So it is not COVID that has put Malta into the welfare-state range because we spent more on all kinds of aid. We were already there.

Some years ago, it had become fashionable for conservative economists and politicians to say, “As everybody knows, there are serious disincentives to work and productivity from the welfare state.” No matter that they did not have the evidence. They were bluffing, as Peter Lindert, Distinguished Professor of Economics, Emeritus, University of California at Davis, has shown in Making Social Spending Work.

In 2019, Malta spent 37.1% of its GDP on social protection.

When people go for the fable that welfare is about paying somebody to be unproductive all of his life, they ignore that the real-world governments do not work that way. Governments understand the issue of work incentives, as the current administration did when it introduced the highly successful In-Work Benefit and Benefit Tapering schemes. They are also spending on things other than simple handouts. They are investing in young people’s education, health, etc.

Even in Malta, there have been some who wondered whether the generous COVID employment support schemes would encourage people from holding off and not get a job. Well, now they have the answer. Unemployment has plunged to historical low levels, the employment rate has gone up and is expected to grow further, and labour shortages are being reported in various private sectors.

Not a whisper has been heard about the so-called “crisis of the welfare state” these past 18 months. The advocates of austerity ─ the European Commission and Germany ─ encouraged member states to run fiscal deficits and increase social spending. The asset markets have been smiling ever since. The EU’s economies, not least Malta’s, stopped their plummeting and are well on the way back up now.

Some wondered whether the generous COVID employment support schemes would encourage people from holding off and not get a job.

Looking at the overall picture in Malta, after recording the highest increase in expenditure on social protection benefits in the European Union in 2020, Government is this year on the way of recording an expenditure of €1.27 billion on social benefits and services, pensions and public social partnerships (see table below). The expenditure has surged by 37.45% since 2013.

The increase has primarily been engendered by across-the-board enhancements in social security pensions, labour activation initiatives, reforms in disability assistance improved packages for elderly living in the community and generous family measures.

Notably, over the same period expenditure on social assistance and unemployment assistance has been practically cut by half to mark an estimated €36.7 million by the end of December, as per the table below.

The drop is mainly attributed to an exceptional decline of 58% in the number of beneficiaries who gradually found work encouraged by a host of active labour market policies in a positive economic climate. The savings on social assistance were ploughed back into the social protection budget to finance other support measures and new benefits.

Over the past eight years, several preventive and support programmes have been expanded and new ones added to bolster children and young persons support services, foster care, positive parenting and services to counter domestic violence.

The service expansion triggered a huge increase in manpower, particularly in the number of professionals, which account for the increase in the funds yearly allocated to the Government’s Foundation for Social Welfare Services which have now neared €30m annually.

More funds to voluntary organisations

Since 2013 the government has signed numerous public social partnerships with voluntary organisations in order to share responsibility in the provision of services based around the needs of service users in various social fields.

At the time, less than €1 million were channelled to 3 partner organisations to assist in the provision of residential care for substance users and troubled adolescents. Over the past few years, the partnership agreements have steadily grown with the annual budgetary allocation expected to reach €10.5 million by the end of 2021.

A further €8 million were this year administered by the Ministry for Inclusion and Social Wellbeing to fund other agreements with NGOs engaged in the disability sector.

2017 electoral pledges in social field implemented

The success of the Government’s social welfare programme is evident from the delivery of the social commitments made in the 2017 electoral manifesto. By the end of October, it had reportedly completed 95% of the programme, and plans are in hand to achieve full closure by next year with the roll out of the pending measures incorporated in the 2022 Budget. 

The Ministry for Social Justice and Solidarity, the Family and Children’s Rights has been particularly effective in fully implementing annual budget measures. This year it had 18 measures and initiatives, all of which would be wrapped up by the end of November.

By all these measures, the Government is demonstrating its commitment to a social pillar which complements the economic pillar, both crucial to ensuring that Malta’s citizens families and individuals in need are supported as they work towards a more secure financial life.

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