The Government of Malta has just relaunched the hugely popular voucher scheme. This innovative scheme which characterised strongly the summer of 2020 will in the coming three months play a key role in the economic rebound of the Maltese economy.
The recent European Commission economic forecasts indicate that private consumption will be a prime engine of growth in Malta. Whereas in the EU consumers are projected to increase their expenditure by 2.8% this year, in Malta the forecast is of 4.4%, or more than one and a half times the EU’s expansion.EAn analysis carried out last year for Government on the effectiveness of the voucher scheme had shown that on average, for every Euro in vouchers issued, Maltese and Gozitans spent two Euros, which means that they spent another Euro on top. In economist parlance, the vouchers had a turnover multiplier of 2, which means that every €10 million of vouchers brought about €20 million in additional spending.
To take an idea of what this sum implies, consider that in the year before the pandemic the total of money spent by Maltese and Gozitans on domestic tourism was just €40 million, or €3.3 million per month. In 2020 more than double this injection occurred in just three months. In fact, during the third quarter of 2020, the number of Maltese and Gozitans that stayed in local hotels more than doubled from 43,000 in 2019 to over 97,000. Eurostat also reported that “in 2020, residents of Slovenia, Malta and Cyprus spent more tourism nights inside their own country compared with 2019, while domestic nights spent in Spain, Greece, Romania, Hungary and Poland recorded the highest drops of more than -40%”.
Every €10 million of vouchers brought about €20 million in additional spending.
While some believe that vouchers were only spent in Gozo, the analysis carried out by Government last year showed that the number of vouchers that were spent at establishments operating in the south of Malta was twice as high as the amount spent in Gozo. This confirms that the impact of vouchers positively affected every community.
The vouchers scheme is estimated to have improved private consumption directly by 1.3% but considering the overall effect on confidence and other costs, the impact was 2.5%. This suggests that in the absence of the voucher scheme, the drop in consumption in 2020 in Malta would have been much higher and in line with that observed in Italy.
The positive economic impact of the voucher scheme is calculated to have created jobs for around 1,900 persons. Of these, almost 1,000 were in accommodation establishments and restaurants and 500 in wholesale and retail.
Taken together, the multiplier impact of the voucher scheme on private consumption and on job creation had a strong impact on Government revenues. Just in VAT, the scheme is estimated to have generated some €16 million, recovering over a third of the cost of the voucher scheme. The jobs that it created or saved will have generated tax revenue equal to another €11 million. Factoring in addition other tax revenue, such as corporate taxation, the scheme was virtually self-financing.
Given this background, the relaunch of this scheme holds great promise. This is particularly true as Maltese and Gozitan families appear to be in a much stronger financial position today. For one thing, when the previous scheme was launched, a tenth of households with a mortgage were needing a moratorium, while today less than a tenth of that amount are requiring this assistance. The European Commission sentiment survey indicates that the state of confidence of households currently is about twice that at the same time in 2020.
Assuming that the effectiveness of the voucher scheme just remains at the level observed last year, it is safe to say that the scheme will boost GDP by nearly one percentage point and be directly responsible for a fifth of the economic growth forecast for this year.