Drop in proportion of people at risk of poverty or social exclusion

Despite the COVID-19 pandemic, the proportion of Maltese people at risk of poverty or social exclusion continued to fall.

According to the new European Union benchmark, the rate of people at risk of poverty or social exclusion fell from 20.8% in 2019 to 19.9% inn 2020.

These figures have been noted by Prime Minister Robert Abela in a tweet, in which he highlighted the difference in poverty rate after the 2008 economic crisis and the present rate, following the COVID-19 pandemic.

At the onset of the pandemic, many predicted that the social progress achieved in the past years would be unwound. Unemployment was expected to soar, those on benefits were expected to rise, incomes were expected to fall. The COVID-19 pandemic would inevitably result in a higher rate of people at risk of poverty or social exclusion.

Moreover, the pandemic coincided with a change in the methodology used by the European Union to measure poverty and social exclusion. Before 2020, for people to be considered severely materially deprived they needed to be unable to afford 4 out of 9 material items, whereas now one has to be unable to afford 7 out of 13 items.

These two factors combined, the economic shock of the pandemic and a more onerous measure of the risk of poverty and social exclusion, meant that the expectation was that 2020 would result in a rise in recorded poverty.

If one adopts the previous European Union benchmark, the fall is even more significant, to 19% in 2020 from 20.1% a year earlier. Moreover, according to the previous benchmark, the proportion was the lowest ever recorded, at par with the previous record-low established in 2018, and a quarter less in relative terms than the 24.6% that had been registered in 2013.  

This substantial social improvement occurred even though the risk-of-poverty measure is compiled using a relative income measure. In fact, those considered at risk of poverty are classified based on their income being below a certain proportion of the prevailing median disposable income at the time. In 2012 the average disposable household income was just €22,379. In 2020 it had risen to €31,266, an increase of nearly €9,000, or 40%.

In 2012 the average disposable household income was just €22,379. In 2020 it had risen to €31,266.

If one were to adopt the poverty threshold that was applied in 2012, the number of those earning below that amount of income is just over 19,000. Back in 2012, there were nearly 62,000 who could depend on this income.

The risk-of-poverty measure is a very tough benchmark to beat – as the more the economy prospers, the more income one needs to earn to be considered not at risk of poverty. It is not the standard conception of poverty that most people have – which is mostly related to being unable to afford certain items. This is more closely captured by another measure devised by the European Union – its severe material deprivation measure.

Less people in severe material deprivation

In 2020, using a time consistent definition, the proportion of those in this situation was 3.3%, or 16,636 persons. In 2012 there were approximately 37,000 persons suffering from severe material deprivation, or 9.2% of the population. The data hence confirm that if one uses an absolute measure, rather than a relative measure, of poverty, the situation in 2020 is around three times better than it was in 2012. 

Adopting the more comprehensive concept of poverty adopted by the European Union – which focuses on how one’s income compares with those of the rest of the country – shows a less pronounced improvement, but still a significant one. Back in 2015 there were 22.3% of the population at-risk-of-poverty or social exclusion. In 2020 this was down to 19.9%. 

Focusing on the change that occurred between 2019 and 2020, the biggest improvement was observed among those over the age of 65, where the rate decreased by 2.2% compared to 2019. Even among children there was a significant reduction in the risk of poverty or social exclusion, with the rate decreasing by 1.3% in 2020.

The rate of persons considered as materially and socially deprived decreased from 9.9% in 2019 to 9.4% in 2020. This reflected a decrease in the proportion of those who feel they cannot afford to participate in a regular recreational activity, in the proportion of those who do not find it difficult to change their home’s furniture or who cannot keep their homes warm in winter, as well as in the proportion of those who have arrears in their bills, rents or debts. 

These results are not a coincidence. In fact, the data confirm the vital importance of Government’s intervention through the social security system. If the Government had not invested more than a record €1 billion in social benefits, the amount of those at risk of poverty would have been twice what it was. Social benefits issued in 2020 lifted around 92,000 people from the risk of poverty.

The decision of the Abela administration not to go down the path of austerity has made a real difference where it really matters. The Gonzi administration’s austerity in the face of the 2008 financial crisis had led to the number of those in severe material deprivation to rise by 3,000 in just one year, and by 20,000 by the end of the legislature. Instead, the progressive policies of Robert Abela have lowered severe material deprivation by nearly one thousand persons despite the economic shock of the pandemic being substantially larger than that of the 2008 financial crisis.

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