How Malta achieved a paradigm shift in benefit dependency

“Where there’s a will there’s a way.” This dictum has been drummed into the minds of generations of children at school and at home to encourage and spur them on in the various stages of their studies, to pave the way for secure jobs and successful careers.

Published biographies chronicle the travails experienced by internationally renowned entrepreneurs and political leaders to achieve their dreams and ambitions. They tell how, through hard work and sheer determination, they pushed their limits to overcome obstacles and reach great heights in their life.

But life experiences reveal that willpower on its own is no sure guarantee of ultimate success in life. People may fail to make the grade as the prevailing economic and social conditions in their country deny them the opportunities to move on in life.   

This was Malta’s problem early in the 2010s, when a persistent sluggish economy cut down job opportunities leading to high unemployment and an increase in the number of persons at risk of poverty or social exclusion and in the number of persons in severe material deprivation and material deprivation. For most, the primary sources of revenue were social assistance and unemployment benefits.

By 2013 the number of social assistance beneficiaries had reached 9,241 and those on unemployment benefits stood at over 6,000. Inevitably, the number of materially deprived households peaked to over 82,000, nearly 20% of the population, while those in severe material deprivation reached 43,000 or more than 10% of the population.

Making Work Pay

To stem the tide, in 2014 the Government activated initiatives and policies to boost economic growth and invigorate employment levels, and at the same time, introduced a package of social activation and labour participation measures. The package, labelled as “Making Work Pay”, comprised the tapering of social benefits, the In-Work Benefit and free childcare for parents in employment and education.

The tapering of benefits scheme was primarily developed to wean off persons from inactivity and social benefits and provide them with greater security in employment. On landing a job, beneficiaries drawing social assistance were allowed to retain part of their social benefits over a three-year period. In their first year they kept 65% of the benefit, and in the following two years their entitlement was trimmed down to 45% and 25% respectively. 

The scheme was developed in close collaboration with job providers in the private sector who, over the three years of the scheme, were assigned 25% of the benefit.

Take-up in the scheme gradually peaked to 3,600 in 2017 and markedly, over 80% of the participants remained in employment at the end of the 3-year period of the scheme. Around 70% of participants were females.

“Making Work Pay”, comprised of the tapering of social benefits, the In-Work Benefit and free childcare for parents in employment and education.

The In-Work Benefit is a significant component of the Making Work Pay package. It was tailored to boost the disposable income of dual-earner families and single parents in employment who have dependent children up to 23 years of age. After its launch in 2015, the scheme was extended to one-earner families with lower rates than those of dual-earners to incentivize the second parent to work and attain a higher benefit rate. By the end of 2020 the number of benefitting households increased four-fold to more than 5,300. NSO figures show that since the inception of the scheme participating families earned a total of €20.5m overall, over and above their employment income and family benefits.

To underpin these schemes a free childcare service was rolled out to facilitate the entry or retention of women in the labour market. The policy was well received by families with children under 3 years, as underlined by official figures indicating that from the launch of the service in 2014 the number of children placed at these centres doubled to 6,700.

Overall, aided by notable economic growth, the social activation measures have contributed towards cutting down the number of unemployed persons to record low levels and, through a steady increase in the female labour participation, in addressing the gender employment gap. At the same time, Malta reversed the rise in the number of persons at risk of poverty or social exclusion as well as in the number of persons in severe material deprivation and material deprivation.

The success of the package is mirrored by the significant drop in benefit dependency, with persons on social assistance decreasing by 5,400 to just under 4,600 at the end of 2020; and unemployment beneficiaries going down by 5,000 to just over 1,100 in 2020. Overall, benefit dependency decreased by more than 60% in 6 years, a remarkable achievement indeed. What is even more remarkable is that during the past year of the pandemic, the number of social assistance beneficiaries remained static, thanks to a series of robust aid packages launched by Government in these last 15 months. 

The accruing savings in expenditure on these benefits have been redistributed to finance the introduction of new social measures or the enhancement of others. The result of all this is that the number of persons in material deprivation dropped by 40,000 or 11pp since 2013 while the number of persons in severe material deprivation decreased by 27,000 or 6pp in these last 7 years. Since 2013, 1 every 2 persons have been lifted out of material deprivation while 2 out of 3 persons have been lifted out of severe material deprivation.

Studies are now underway to evaluate how these and other policies and schemes can be more closely tailored to the social and economic infrastructure that has evolved in the last few years, so that they may continue to contribute to reduced benefit dependency, reduced poverty and give greater dignity to the persons concerned.

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