Spanish mule

▪️ Spanish mule ▪️ Lost trust ▪️ Debt, no worries ▪️ Stop Israel

Earlier last year the Spanish government introduced changes to the pension system that increased contributory pensions for nearly 11 million pensioners, putting most of the additional cost on the country’s highest earners and their employers.  In contrast with France, where there were fierce, cross-sectoral protests over the government’s push to extend the retirement age by two years to 64 and cut some benefits, the Spanish plan focuses on increasing revenues through tax hikes.

The overhaul, a key requirement by Brussels for Spain to obtain a new tranche of European post-pandemic recovery funds, had sparked a four-month debate within the country as the government sought to find a way to hike revenues without penalising future pensioners. Revenues are expected to increase by €15 billion a year, representing a rise of three percentage points of gross domestic product (GDP) by 2050 and reducing to 15.5% of GDP the burden of pension payments on the budget. Opponents of the reform had argued that it would increase labour costs, endanger job creation, and reduce workers’ wages.

The reform means that pensioners are now getting €50 more annually.  This further improves their position since their pension will now be at least six percent higher than the national average of all pensions.

In spite of this, a 63-year-old Spanish pensioner recently decided he needed to boost his income further by coming to Malta with two suitcases full of cannabis. Francisco Javier Martin Diaz arrived on a flight from Lisbon and was stopped by Customs after 21 kilogrammes of what was suspected to be the drug were discovered in his luggage. He was arrested by Drug Squad officers.

Diaz lives in the Andalucian town of Huelva  ̶  a city closely associated with Christopher Columbus.  But, unlike Columbus, who took horses and sugar plants when he first travelled to the New World, Diaz brought drugs.  Before he sailed for the New World, Columbus prayed to his favourite virgin in her chapel, something that I doubt Diaz will have done before coming to Malta.

Now Diaz will have to spend time at the Corradino Correctional Facility, where I doubt that he will dine on Huelva’s exquisite jamón de Jabugo (Jabugo ham) or the delicious gambas de Huelva (Huelva prawns), famous for their characteristic colour and taste.  He will even have time to ponder over a famous quote from one of Huelva’s most famous locals  ̶  poet and winner of the Nobel Prize in Literature Juan Ramón Jiménez  ̶  when he said that he feels a “sharp nostalgia, infinite and terrible, for what I already possess.” 

Lost trust

In recent years, public trust in governments has fallen to record lows. Earth4All’s Social Tension Index concludes that, with worsening inequality, social tensions will continue to rise in this century, thereby fuelling populist nationalism and the erosion of democracy and public trust around the world.  It was therefore quite appropriate that this year’s World Economic Forum at Davos focused on the theme of ‘rebuilding trust’.   

Not so long ago, UN secretary-general António Guterres gave a speech in which he asked: “Will we succumb to chaos, division, and inequality? Or will we right the wrongs of the past and move forward together for the good of all?”  The question remains unanswered, as most leaders seem paralysed in deciding what to do.

One might ask why inequality has led to declining public trust. Well, it has because, for one, the public cannot understand how political leaders tolerate the exhorbitant gap between the pay of high-level management and workers, with the former being paid 344 times as much as the latter  ̶  compared to 21 times 60 years ago. Or why the fortunes of billionaires have mushroomed by 109 percent over the last decade, with a new billionaire having been created every 30 hours during the Covid pandemic.

It is no different in Malta.  I do not understand why any government should be surprised when it sees that its ‘largesse’ is not appreciated by the general population.  Is it so difficult to understand that the common man feels robbed when, in 2022, the top 25% of the population earned four times more than the bottom 25%, compared to 3.6 times more a decade ago?  And how about the fact that the top 10% of the population captures 25.2% of the national equivalised income compared to the bottom 10% of the population that has to be content with 3.4%?  Trickling down, indeed.  Shove your “small rich men” mentality up somewhere.

So, while the Portellis of this world have massively increased their wealth, governments have become significantly poorer, with the share of wealth held by the government now close to a negative €5.4bn   ̶   that is €1bn worse than in 2013.  This means that it is difficult for the government to redistribute income and wealth.

So, as a good socialist, I believe that the government must increase tax progressivity in order to have sufficient revenues for social spending.  Of course, the government could instead reduce spending, but this would most likely hurt the most vulnerable anyway.  The second step is wealth taxation. A wealth tax starting at just 2 per cent could well generate €80m annually.  It is already strange that the government did not enact a windfall taxation on the abnormal profits that were generated by business during and in the wake of the Covid pandemic.

According to a study by the Greens/EFA Group in the European Parliament, the government could pocket an extra €344 million a year through a new tax of between 1.78% and 3.5% on the wealthiest 0.5% (€43m = 0.25% of GDP) and a clampdown on tax evasion (€301m = 1.75% of GDP). The simulation of the potential revenue was built from data obtained by the World Inequality Database and following the model of the Spanish solidarity tax introduced early this year.

A serious conversation on economic inequality is long overdue if political leaders are serious about restoring public trust.

Debt, no worries

The public debt last year topped a record €9bn but worries over its size are misguided.  Although concerns now abound among some politicians, economists, and common people, pessimists are overlooking the amount of money potentially available.  Yes, €9bn is a big number, but €29.3bn is even bigger and much more important because it represents the net assets of Maltese households  ̶  a massive resource that helps fund government debt and deficits.

Debt sceptics have warned that the threat comes more from the fact that interest rates have now increased, meaning that borrowing costs associated with public debt will also rise.  Those costs will boost debt higher, feeding a cycle, they say, that could eventually lead to a collapse of the public finances.  But debt servicing costs are not alarming, though they will have reached around €230m in 2023  ̶  they  make up a smaller percent of GDP than in the past.  Today, the debt servicing load stands at just about 1.2% of GDP.

The Opposition and some economists who let their biases win over their economics are creating high drama over the nation’s borrowing and finances.  Some people who do not understand the figures are even being led to doubt whether, when they buy a government bond, it is safe to do so.  Rather than let incompetents mislead them, all they need to do is look at the S&P, Fitch credit, Moody’s, and DBRS ratings of A-, A+, A2, and A respectively, all with a stable outlook.

Photo: Malta Today

It is Politics that is the real threat, not the level of borrowing.  Some borrowing can provide economic benefits and advance societal goals, such as programmes that lower poverty or improve the infrastructure and the quality of life. “Debt has many useful purposes,” says Kris Mitchener, professor of economics at the Leavey School of Business at Santa Clara University. “The public debt has always been used for emergencies. It’s easier to finance by borrowing than to burden the current generation with taxes.”  If Covid, the Ukraine War, and the supply logistics upheavals were not emergencies, I don’t know what was.

Now it is true that the European Central Bank is pushing up interest rates and this will, in due course, increase the debt burden.  But, on the other hand, this would feed hundreds and hundreds of thousands of euros in additional income to bondholders.  So, people who hold government bonds paying higher rates of interest, will get more interest income and that income could be spent just like any other form of income.

A country that prioritises the size of the public debt has bad priorities.  Thank God that our policy-makers have not fallen for the alarmist language of some fiscal saints.  Yet, that does not give them a cart blanche to exceed the limit.  There must be the necessary resolve to start reining in the fiscal deficit and the public debt in the not-too-distant future.

Stop Israel

The ineffectiveness of the United Nations is legendary.  Stymied by vetos in the Security Council, it is rarely able to address major crises involving its members.  This failure is evident again in the question of the Israeli excesses in Gaza and the West Bank subsequent to the Hamas attack two months ago.

That Israel has the right to defend itself is undeniable, as is the fact that the destruction of Hamas would be in the interest of the Palestinian people.  Even if war was unavoidable, the scorched-earth attacks being committed by Israel are beyond the pale.  Of course, they have little to do with Hamas’s destruction.  They are mainly about the survival of Benjamin Netanyahu and his avoiding imprisonment for his own crimes, as well as to prepare the ground for the annexation of Gaza and the expulsion of Palestinians from their land  ̶  something that has been confirmed publicly by some members of the Israeli government coalition.

Photo: Brendan Smialowski / AFP / Getty Images

The United States itself is now bordering on the criminal, allowing its ally to commit all sorts of atrocities in Gaza while providing arms.  It claims that it is actively urging Israel to change its strategy of killing as many thousands of civilians as it can, in an effort to kill half-a-dozen Hamas fighters every now and then.  Yeah, we can all see how successful Secretary of State Blinken has been.

The US has even tried to cover its complicity by harking back to the idea of a two-state solution, which has been dead in the water since 1993.  Netanyahu’s response: ‘Forget it, guys.  I couldn’t care a hoot what you say.’  Who is President Biden trying to kid? 

Main photo: Terrance Barksdale

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