The changing face of poverty

It is a feat that, in the year when the world and Malta were hit by the COVID-19 pandemic with its attendant economic recession and social disruption, it now transpires that in Malta the At Risk of poverty (ARP) rate in 2020 decreased, albeit slightly, to 16.9% whereas the At Risk of Poverty and Social Exclusion rate dropped by almost a full percentage point to 19.9%.

This was, no doubt, due to the timely introduction by the Government of an aggressive anti-COVID economic package that protected workers, and the most vulnerable people, from the more serious consequences of the pandemic.

Looking at the general picture of income in 2020, it is surprising that, whilst the world was suffering drops in income, in Malta we saw average household gross income rise by 10.3% to €38,210.  Most of this increase was a real rise, since inflation was a mere 0.8% last year. Similarly, average household disposable income grew by 9.7% to €31,270.

It is surprising that, whilst the world was suffering drops in income, in Malta we saw average household gross income rise by 10.3%

This satisfying result was achieved in the context of a growing population, where there was a 4.2% increase to 505,015 people. The increases in income and population meant that Disposable Income in the country rose by 15.4% to €6.47bn, in spite of a 20% increase in taxes paid on income and social contributions. Most of the increase in household income (93%) was employment income, which was 2.2% above the 2019 level. The rest of the increase was due to a mix of higher family and children allowances, sickness and disability benefits, and education allowances. By the way, unemployment benefits fell by 11%. There is no greater testament to the Government’s social commitment than this.

What is striking about the batch of statistics released by the National Statistics Office is that the number of people at risk of poverty (60% of the Median National Equivalised Income, that is income adjusted for the number of people in a household) rose less than what we would have had at the same 2019 rate of 17.1% on a higher population. In fact, instead of 86,229 ARP people we had 85,369. As pointed out before, the ARP rate itself fell.

A closer analysis of the figures reveals, though, one disturbing sign and one encouraging one. The worrying result was that the rate of people earning less than 40% of the median NEI (€6,496) rose by 0.8 p.p. (4,756 more persons). Combined with the fact that the rates of those earning less than 50%-70% of the median fell, this means that the worst hit were the most vulnerable people.

It is evident that those who suffered most as a result of COVID were inactive people or people whose work intensity was very low. In fact, we had a rise of almost one p.p. in the ARP rate of inactive people, coupled with an increase of 4 p.p. in the ARP of people with a very low work intensity (those who worked less than 20% of the hours they could potentially have worked). 

It is evident that those who suffered most as a result of COVID were inactive people or people whose work intensity was very low.

Of course, it is no surprise that, if people work less, they are more likely to be hit adversely by a financial crisis, especially since they tend to be people who do not have a nest of savings to fall back on. The NSO found that, whereas the ARP rate was just 4.6% among those who worked more than 85% of the potential), it exploded to 75% among those who worked less than 20% of the potential.   

On the other hand, the encouraging sign was that the rate of people earning less than 70% of the median NEI (an income of €11,368) fell by 2.0 p.p. (4,998 less people). Overall, some 87% of the increase in population earned a higher income than the ARP threshold.

However, it needs to be said that not everything is a bed of roses in the living conditions of the Maltese population. Like in other countries, we are witnessing increasing income inequality. For example, the S80/20 ratio increased by 0.5 to 4.7. This is the ratio of the share of the 20% of persons with the highest household income in the total household income of all inhabitants, to the share of the 20% of persons with the lowest household income in the total household income of all inhabitants. Similarly, the distribution of income worsened by almost two percentage points to 29.9%.

In terms of how monetary poverty affected people of different ages, both those under 18 years of age and those over 65 years experienced drops in their ARP rates, whereas those between 18-64 years suffered a minor increase. But, interestingly, all age categories saw an improvement in the At Risk of Poverty and Social Exclusion rate, especially those aged 65 and over.

It is also interesting to note how different households fared in their living income. For a start, there is a slight difference between households without dependent children and those who have them, with the former experiencing a lower ARP rate while the latter saw their increase, albeit marginally.

In those households without dependent children, one-person households saw their ARP rate increase, whereas two-adult households fared better than last year. On the other hand, the position of households with dependent children improved marginally. However, different households fared quite differently. Single parent households and two adult households with three or more children, suffered a considerable deterioration in their monetary poverty. This contrasted with households with two adults and one or more dependent children, whose deterioration was less marked.

There are several reasons why single parent households with dependent children have a markedly higher ARP rate (49.7% in 2020). Most of these parents are likely to be persons who are not active in the labour market, work-part time or have a very low work intensity. Their income would be mainly or exclusively social assistance.   

This is why the poverty effort should be better targeted than it has up to now. The Government would do well to consider some of the measures being proposed by Caritas Malta in their Budget 2022 submissions. We have, all too often, increased benefits across-the-board, rather than concentrating on the people where that extra couple of hundred euros can make a huge difference.

The Government would do well to consider some of the measures being proposed by Caritas Malta in their Budget 2022 submissions.

Taking stock of the change in the poverty picture over the last eight years, it is clear that monetary poverty has increased, mainly due to the population increase but also because the basic rate has gone up. People under 18 have fared the best, but those over 65 years of age have seen their monetary income deteriorate. Around half of the rise in overall monetary poverty has, in fact, occurred in the latter age bracket.

When one includes the measure of social exclusion (AROPA), the picture is not as bad. Though AROPA has increased in absolute terms, it has done down in percentage terms and has not been negatively affected by the population growth. Again, it is young people who have largely benefited from the improvement, while elderly persons have had a raw deal.

Inequality and income distribution have followed the global trend, with an economy increasingly skewed in favour of those who earn most. The Minister of Finance has said that future economic policy will give greater attention to the need to close the gap between those who are well-paid and those who are not. It is a moral imperative, but also one that makes sense economically.

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