That Indian guy

▪️ That Indian guy ▪️ Taxing issues ▪️ Running on fumes? ▪️ Drip, drip ▪️ Back to nature

Late last year, a small, hot-pink sign was put up in the entryway of Barcelona’s Bar Montserrat. “I’m not ‘the Chinese on the corner’,” it reads in bold white lettering. “You can call me Cai Qin or Jessi. Or a bar, restaurant, café, or pub.”  As  a result, while Cai Qin Chen darts between serving coffees and taking orders, she’s heard her name called out more often in recent weeks than ever before.

Chen, who with her husband, Xin Chen, has owned the small bar in the Poblenou neighbourhood for 16 years, says that “perhaps people aren’t seeing us as foreigners any more, but rather people who are part of Spanish society.”  The custom of referring to certain shops and restaurants by the national origin of the people who own them is common across Spain, like it is in Malta.  If one really thinks about  it, it’s a bit racist.

Álex Porras and Laia Sánchez hoped to call this practice into question when they launched the campaign #TengoNombre, or ‘I Have a Name’.  The pair, who are studying advertising at the Brother Barcelona creative school, had been tasked with building a campaign to tackle social exclusion. As they tossed ideas around, they realised the issue they needed to address was right in front of them.

They started speaking with shopkeepers in Poblenou, convincing about 10 of them to put up signs, and set up an Instagram page where anyone interested in the campaign could download a sign to put up in their establishment.  Weeks later the class project began to take on a life of its own.  The number of people following the campaign on social media rose from a few dozen to more than 8,000.

It soon became evident they had touched a nerve.  Some opposed what they were doing, while others accused them of having too much time on their hands. But many applauded them for offering people the chance to reclaim their names. “In the end we generated debate and that was what we wanted,” said Sánchez.

The situation in Barcelona mirrors itself in Malta with a “micro-racism” that differentiates between businesses owned by Maltese nationals and those whose roots trace to countries such as India or Burkino-Faso.  Next to my daughter’s home, there is a grocery owned by an Indian.  I happen to have shopped there occasionally.  He is a polite and willing shopkeeper and keeps a spotlessly clean place.  But nobody in the vicinity refers to his grocery as “Ishaan’s”, but as “the Indian’s”.

I don’t think the neighbours wish he weren’t there, otherwise they wouldn’t shop at his grocery.  But still, wouldn’t it be nice is they started calling him Ishaan, like they would call a Maltese called Anġlu by his name and his grocery’s as “Anġlu’s”?

Taxing issues

Discussions on taxes are always controversial because they do not merely concern how much revenue any government can raise and the fiscal implications of that.  Taxation policy has social, economic, and political implications  ̶  all of which will affect various categories of people differently.  It is no wonder that there is rarely a consensus on it.

We saw an example of this in the recent controversy about whether the best way to address the impact of inflation on households through the deal reached by the government with importers and retailers to reduce the prices of various goods by 15% or whether not taxing COLA is the best way to go.

Photo: Nataliya Vaitkevich

The Malta Employers’ Association claims that as much as €40 million that are due to employees as compensation for inflation is actually diverted to Government through income tax and social security contributions, rather than to the intended beneficiaries.  Out of the record €12.81 cost of living increase per employee, government is set to reclaim approximately €3.50 per week, the MEA said. The Ministry of Finance was silent on the claim.

Employers believe that exempting COLA from taxation would be more effective in mitigating the impact of inflation than compelling retail outlets to reduce the prices of selected supermarket items, as the additional purchasing power would be “immediate and direct”.  Moreover, their association claimed that the deficit between the net amount received by employees and the full COLA   ̶   which is meant to solve for inflation   ̶   could in itself cause further wage inflation with the consequent impact on the general price level. 

Of course, the employers did not highlight that, if the Government made COLA tax-exempt, this would allow them and businesses not to do their part in fighting inflation.  Very convenient.

Having said that, I do have some sympathy for the MEA’s position, though I wouldn’t go as far as them.   Even if the proposal were to be given any consideration, I would strongly argue that the tax exemption should not apply to anybody earning more than the median income.  I’ve had enough of proposals that see the better off receiving as much, or more than, vulnerable people in society.

Running on fumes?  

In economics, as in many other areas of human endeavour, where six people gather there are likely to be eight different views.  While the bout of high inflation last year has been generally attributed to supply-chain disruptions, swings in energy and metal prices, and the war in Ukraine, one economist begs to differ.

Steve Hanke, a prominent economist at the Johns Hopkins Whiting School of Engineering, says that the high and volatile inflation of recent years is chiefly due to changes in the money supply. The shrinking money supply will choke economic growth and curb the pace of price rises, he says.

He can’t easily be shrugged off.  After all, the veteran economist and a colleague of his, John Greenwood, predicted in July 2021 that the headline consumer price index would rise quickly to 9% on an annualised basis.  They later forecast the inflation measure would fall to between 2% and 5% by December last year.  His predictions for the USA were almost replicated in the EU, when inflation rose from a low of 0.9 percent in February 2022 to 10.6 percent in February 2023, and it ended the year at 2.4%.

Hanke says that, as Milton Friedman taught him long ago, “inflation is always and everywhere a monetary phenomenon.”  He believes that money is the economy’s fuel and that material changes in its supply have a lagged effect on economic growth, spending, and the pace of price increases.

He warns that the US economy is “running on fumes” and “on schedule to tank”, given that its money supply has plunged since March 2022, after growing by a historic high in 2021/22 in part due to stimulus measures during the COVID-19 pandemic.  One could say that this applies to the eurozone too, where M1 (a narrow monetary aggregate comprising currency in circulation and overnight deposits) grew by 30% between February 2020 and August 2022 but has since dropped by 11 percent.

The reduction in the ECB’s monetary policy asset portfolio is contributing to a deterioration in euro area banks’ financing and liquidity conditions, resulting in the build-up of further tightening pressure on the supply of credit.  The cumulative tightening since 2022 has been substantial, which is consistent with the ongoing significant weakening in lending dynamics. Euro area banks expect a further tightening for loans to firms in the fourth quarter of 2023, albeit at a moderating pace.

This has been the biggest tightening in loans to firms since 2011, complemented by a sharp drop in demand for mortgages. The ECB’s fourth quarter lending survey provides confirmation that monetary transmission remains forceful and that economic activity will remain curbed by tight policy in the coming quarters.

At a macroeconomic level, tighter monetary policy dampens consumption and investment, reducing demand for consumer and business products. All else equal, it will also cause the euro to appreciate, posing challenges for exporters.  This is good for inflation, but rather negative for the economy as a whole if it brings a recession nearer.

Drip, drip

Some time ago Frans Camilleri wrote a piece on The Journal about price gouging and drip pricing.  Drip pricing occurs when consumers are shown an initial price for an item or service, only to find additional fees revealed later at checkout or placing an order. As with so many other things, this problem is not receiving the attention it deserves from the almost-moribund Competition and Consumer Affairs Authority (MCCAA).  

Not so in other countries.  In fact, the UK Government has just presented legislation to ban “drip pricing” in the form of unavoidable hidden charges for online customers, fake reviews, and insufficiently clear price labels on supermarket shelves.  Drip pricing is particularly relevant in the transport (add-ons in low-cost airlines) and communication sectors (telephony and internet access).

The current rules   ̶   or rather lack of them   ̶   mean that consumers are often confused as to what they are paying for what they get and risk falling for scam.  What are the policy-makers waiting for?  These and many other inefficiencies and abuses are clearly contributing to higher inflation.

Back to nature

A 32-year-old electronics engineering graduate by the name of Brandon Spiteri made the headlines recently, when he was reported to have left his profession to work in the fields on a full-time basis.  The Malta Independent described how, like many youths, Spiteri had invested his time and energy into building a career in the technology industry but came to realise that it was not something he saw himself doing for the rest of his life, as it was “draining him”.

However, being an intelligent guy, Spiteri decided that, before venturing into the agricultural field on a full-time basis, he needed to aquire knowledge of the cultivation of the land and the rearing of animals. So, he went back to University and obtained a Diploma in Agriculture.

He is now using some of his newfound knowledge to plant his crops and use natural fertilisers done with surrounding plant scraps and plants from the sea. Thanks to this system, which he is slowly integrating with the water dispensing system to water the plants, Brandon will soon be able to decrease the need to plough the land.

At University, Brandon learnt about the earth worm and how beneficial it is to its surrounding habitat.  “I really don’t like seeing earth worms sliced in half when I plough,” he told The Malta Independent on Sunday. The methods he is using will also decrease his need to rotate his crops and diminish crops’ dependency on specific nutrients.

Brandon is also keen on producing better quality fruits, vegetables, and meat.  He recalls how, a few decades ago, one could buy a chicken and turn it into broth “that would fill the house with a good smell”, while nowadays “the same priced chicken needs tons of spices in order to just taste good”.

Brandon Spiteri. Photo: The Malta Independent

Of course, earning a living off the land can be precarious at the best of times. The obstacles are numerous. The biggest one, according to the new farmer, is that all the banks that he contacted refused to give him a loan to buy a piece of land.  Isn’t this an example of market failures? How about the Malta Development Bank reaching out to him?

Brandon quite rightly complained that the government does not help people like him.  There are government schemes to assist farmers buy land which has been put on sale by its owners, to help those who are threatened with eviction, and also to attract young people to farming.  Some of these schemes may have closed or exhausted the funds available.  The PN has promised to introduce a scheme, if elected, to assist farmers buy land.

Meanwhile, the Agriculture Census for 2020 shows that the agricultural labour force has declined by 4,700 in 2010 to 13,511 persons in 2020, while the force is ageing badly with just 23.7% of the workers being under the age of 45 years.  These disappointing statistics are complemented by other warning signs about the health of the agriculture sector   ̶   a drop of 6.2% in the agricultural area since 2010, and the number of cattle, broilers, and reared pigs decreasing by between 8.0%-43.0% over a decade.

We could possibly learn something from Italy.  With more than 55,000 under-35s running farms and ranches, Italy is currently the leading European country in terms of companies run by young people, partly due to the accelerated greening of consumption and work.

Main photo: Adobe Stock

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