Bigger social assistance spend in a less assistance-dependant Malta

A recent release by the National Statistics Office (NSO) on social security expenditure in the first half of 2021 confirms that Malta’s social safety net has performed very well during the pandemic.

Prior to the reforms made in the 2014 Budget, Malta’s social benefit system was a passive one. This meant that typically, when an economic crisis hit the country before 2014, it would result in some people ending up depending on social assistance. They would then fall in a poverty trap, with little incentives to get off social assistance. The more they stayed on benefits, the more they ended up dependent on them, together with funds from informal economic activity in the underground economy. They would move from one benefit to another, starting from unemployment assistance then to social assistance and then when they reached a certain age to supplementary assistance.

Budget 2014 with its introduction of the youth guarantee, in-work benefit, free childcare and the tapering of social benefits, sought to break this cycle. These measures proved to be very effective, as can be seen in the past 6 years.

From nearly 6,000 dependents on unemployment assistance in 2013, at the end of 2019 there were just 1,079 persons relying on this support. Social assistance beneficiaries, which by December 2014 were up to nearly 14,000, fell to 7,778 in five years. Despite that the eligibility conditions for supplementary assistance were widened, even here the number of beneficiaries also decreased.

Most had expected these gains to be reversed as a result of the pandemic, but the incentives to make work pay embedded in the system withstood their first major test. Those on unemployment assistance rose slightly in 2020, but by mid-2021 the fall resumed, resulting in a new record low.

More impressively, the number of those receiving social assistance dropped both in 2020 and in the first half of 2021. So much so that by end June 2021, the number of persons depending on social assistance was one thousand less than that at the end of December 2019. By contrast, in the first year and a half after the 2008 economic crisis, the number of those on social assistance had risen by 900. Those dependent on social assistance in mid-2021 were a third less than at the height of the 2008 economic crisis.  Similarly, the number of those resorting to supplementary assistance to raise their low income in mid-2021 was a quarter less than in 2009.

This decline in dependence on benefits, made it possible for Government to raise benefit rates without negatively impacting fiscal sustainability. Thus, Government’s allocation to supplementary allowances cost rose from €4.3 million in 2019 to €6 million in 2021. The same happened for newly introduced benefits such as the in-work benefit. Compared to a year ago, the amount awarded rose by almost one million Euro, or almost by half. This followed improvements in rates, eligibility, and a new supplement for those on this benefit that have children.

Thanks to previous Budget measures, the amount targeted towards persons with disability has now risen to almost €16 million, compared to less than €13 million before the start of the pandemic. The same happened with Children’s Allowance, where the allocation went up by €2 million, or 10%, largely thanks to the introduction of a supplement. In the 2008 economic crisis the Government had reduced this assistance to households by more than €2 million.

Pensioners, unlike in previous occasions, were not left alone in this moment of economic challenge. In fact, the amount awarded to widows rose for the first time in history to more than €80 million in the first six months of the year. This meant an increase of €15.6million, or almost 25% compared to the amount allocated before the pandemic. As regards the amount granted to pensioners it also reached a record figure of more than one third of a billion Euro in the first six months of the year. This meant a growth of €42, or 14% compared to 2019. Focusing solely on minimum pensions, the allocation has increased by €9 million, or a third.

That in the middle of an unprecedented economic challenge, Government finds the funds to raise the investment in children’s allowance by 10%, in widows’ pensions by 25% and in minimum pensions by 33% is the strongest evidence that Malta’s social safety net is working.

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