If I had to describe the Budget 2024 in a single word, that would be ‘stability’.
While presenting the second Budget of the current legislature yesterday night, the Minister for Finance and Employment succinctly provided a clear description of the current global economic and political context in which he was delivering his annual Speech in Parliament. He explained how, while in the rest of Europe we have a situation of economic instability, emanating mostly from the war in Ukraine, the current Maltese administration has managed to offer the country stability.
Global economic growth slowed down in 2023 and inflation remained persistently high. Inflation continued to dampen household consumption and economic activity worldwide. Likewise, the geopolitical realities of the war in Ukraine as well as the Middle East conflict are risking creating another economic shockwave, while the predictions of weak global economic growth might become even more pronounced.
Germany, the Eurozone’s largest economy, is cutting education and healthcare spending, a move that could have long-term consequences for the country. Malta, the smallest economy in the Eurozone, is taking the opposite approach, increasing spending on basic services in the belief that economic growth requires stability.
Besides the increase in the cost-of-living-adjustment (COLA), the Government has also raised the minimum wage. It is offering stability not only to employees but also to employers, who are able to predict the costs of the minimum wage for the coming years as well as the COLA. If economic predictions hold, inflation is foreseen to gradually subside to normal levels in the coming two years.
The Government’s provision of an additional allowance to 95,000 households, distinct from the normal COLA, is a concrete example of its socialist values in action. Last year, the number of families that benefitted from such a measure reached around 45,000. This year the government sought to double the number of beneficiaries, primarily to assist those families who have been mostly affected by inflation.
When the going gets tough
The fact that Malta is currently experiencing full employment should not be taken for granted. Let us not forget that, faced by the financial crisis of 2008 and 2009, the Nationalist administration brought about uncertainty with its decision not to intervene in the markets. Back then, the unemployment rate had reached seven per cent, while economic instability, mostly attributed to non-subsidised energy prices, left the Maltese economy stagnant.
The current administration is doing exactly the opposite. The school of economic thought applied is surely Keynesian, meaning that the Government is intervening directly with subsidies to ensure economic stability in tough times. The Government is acting in partnership with the private sector to create additional wealth, which will then redistribute income through other means. Plainly, it means that, in bad times, the Government intervenes directly and spends more. In good times, then, the Government abandons its direct interventionist approach, thereby decreasing additional costs, and collects additional revenues. Indeed, there is a huge difference between the economic philosophies of the two major political parties.
The interventionist approach can be seen in how the Government has been absorbing all increases in energy and fuel prices. In truth, the entire burden was taken off families and businesses to provide additional economic growth by not allowing consumption and private investment to slow down. From the Budget Speech, it transpired that the Government will be spending another €350 million on energy and fuel subsidies for the year 2024. In total, the Maltese government has spent close to €931 million over a period of of three years on this support measure alone. Had the Government not intervened in this manner, the price of diesel would have increased substantially to €1.91 per litre instead of the current price of €1.21 per litre. Certainly, that would have eroded disposable income, with families paying around €624 in additional expenses per annum on diesel. Not to mention the increase in the energy bills, as well as the price of other basic services. Clearly, without the support on energy, the energy bill for two people – excluding the water bill and without service charges and charges related to meter rental – would have increased to around €403 per year.
Caring about pensioners
The Budget includes a record €15 per week increase in pensions, on top of the annual COLA adjustment. This will benefit all retirement pensioners, widow/ers, invalidity pensioners, and pensioners of age. This is the ninth consecutive year in which pensions were raised. The government is also increasing tax exemptions for pensioners aged 61 years onwards.
Moreover, as from next year, the widow/er’s pension will no longer be taxable for those who have not yet turned 61. Another measure that saw its introduction in 2015 was the bonus for those who have paid national insurance but did not pay enough to qualify for a pension. In 2024, the bonus for those who have paid from one to four years of national insurance contributions will increase from €450 to €500 while those who have paid from five to nine years will see an increase from €550 to €600 per annum.
The budget for next year also includes many other noteworthy measures, such as increases in child allowances and student stipends, tax credits for scholarships, school renovations, and increased spending on healthcare.
This is yet another Budget that signals stability and reassurance to people in uncertain times.
Main photo credit: Polina Kovaleva