Based on conservative assumptions, between January 2020 and August 2023 an individual or a household with a spending of €100 per month on electricity and the same on petrol saved between €1,658 and €2,996.
This is the direct result of the presence of significant support provided by the Maltese government to shield local consumers from the price shocks that have been characterising the Euro area.
Data compiled by Eurostat, the EU’s statistical office, shows that, at the end of August, the price of electricity across the Euro area was a staggering 43 per cent higher than what it had been in January 2020. Similarly, the price of petrol was 27 per cent higher.
If, on the other hand, one looks at our closest neighbour, Italy, the increases there were of 83 per cent and 21 per cent, respectively, for electricity and petrol. By contrast, in Malta, as a result of the goverment’s support policy, the price of electricity was the same as it had been in the beginning of 2020 whereas petrol was nearly 1.5 per cent cheaper.
The Opposition argues that this support is wasteful and advocates that, as is happening abroad, the prices of electricity and of fuel in Malta should instead rise in line with international prices. Undoubtedly, this would save Government a lot of money, but what would the impact be on households?
The Journal carried out a very simple exercise, assuming that a household spent €100 on electricity and €100 on petrol in January 2020, and that it kept its consumption of units of electricity and of petrol constant each month between January 2020 and August 2023. How much more would they have spent had prices in Malta moved in line with what happened on average in the Euro area or in Italy?
Had electricity prices in Malta moved in line with what happened on average in the Euro area, a unit of electricity would have cost about 19c instead of 13c, while the price of a litre of petrol would be €1.80 instead of €1.34. Had Malta’s prices, instead, grown in line with those in Italy, the price of a unit of electricity would be 24c while a litre of petrol would set you back by €1.70. The Journal did not base its calculations on hiked prices in Malta to equal those in the Euro area or in Italy, but considered the fact that, at the start of 2020, prices here in Malta were already cheaper than in the Euro area or Italy and assumed that the initial relative difference in price would be maintained.
As can be seen in the table, in the first year, following international prices would have benefited households slightly. However, what happened in subsequent years completely offset this. Already by 2021, moving in line with international prices would have set back Maltese consumers by a considerable margin. 2022 would have proven to be a killer year in terms of cost-of-living pressures, with an added expenditure of between €930 and €1,775. Had electricity prices in Malta moved in line with those in Italy in 2022, households would have had to more than double their outlays on electricity, while spending on petrol would have been a quarter higher.
In the first eight months of 2023 the pressure on households would have remained quite elevated as electricity prices remain quite pronounced while petrol prices are also remaining stubbornly high. Had prices in Malta moved in line with Euro area ones, every month a person or a household would be spending €74, or 38 per cent, more than they are currently spending. If, instead, prices had moved like in Italy, the additional monthly spend would have been €146, or 74 per cent, higher. All this shows that a policy of allowing electricity and fuel prices to reflect entirely the movement of international prices would impose very strong burdens on households, particularly during periods of shocks in oil and gas prices. The burden of such shocks would have fallen mostly on lower-income households and would have led to a rise in poverty similar – if not worse – to what had happened in 2009, when a Nationalist administration opted for a completely liberal approach to price setting.