Budget: Between prejudice and supplements

The lowest point in Edward Scicluna’s marathon four-hour speech was his “being a single parent is not a profession” snide at a vulnerable category.  

Such discourse panders to prejudice against a social category, which is most vulnerable to fall in to poverty and fuels the incorrect impression that welfare abuse is rampant and has a significant impact on government expenditure.  In fact only 3,300 single parents are living on benefits.

Yet the budget itself has not ignored the plight of low-income earners including the same single mums demonised by the government, which had been largely overlooked by the tax, cuts introduced by the previous government.

In fact the government is pumping €9 million in a child benefit for 9,000 low-income households. 

Instead of making work pay by increasing the minimum wage, the government is using taxpayers’ money to make up the difference between a minimum wage and a living wage.

Moreover through the “in work” benefit, single parents earning between €8,200 and €9,099 in employment will benefit from an extra €1,200 injection apart from a €400 child supplement. Single mums will not lose their benefit immediately after finding work. Instead the benefit will be tapered down over a 3-year period.

In this sense the government is making concrete efforts to make work pay for single parents.

Still, by giving the impression that abuse is rife among this category to the extent that some are turning this in to a “profession” – the kind of terminology usually associated with the “oldest profession” – the government undermines consent for the welfare state.

Thankfully the government’s verbal Thatcherism is not matched by significant draconian actions. 

Making work pay

In fact the only measure penalising potential welfare abuse is that of cutting benefits to under 23-year-olds who do not attend the youth guarantee programme. Single mums are only exempt from attending during the first year after giving birth. But this is a far cry from the clampdown suggested by the verbal offensive which seems tailor-made to appeal to right-wing prejudice and to allay their fears on the increased benefit expenditure in the budget.

One suspects that the tough talk on welfare abuse was aimed at deflecting criticism on what turns out to be an increase in welfare expenditure.

It is low-income people without children who are completely ignored by the Budget. Apart from the meagre 58c COLA, they will only benefit from a €35 one-off bonus, which translates into a €1.25 a week increase.

The only tangible measure set to improve working conditions is that which will tie the wages offered by workers in companies subcontracted to work in government entities like hospitals to the lowest scale in the public sector.  

Without the passport sale, the government would be facing the same dilemma faced by other European governments: that of choosing between increased taxes or cuts in expenditure.

Although the “in work” benefit for families in which both parents work is another positive measure aimed at encouraging female employment, only €2 million is being allocated to this scheme.  Since this measure is targeted for that vast sector not rich enough to benefit from the tax cut, but not poor enough to benefit from child supplements, it indicates that this category is being overlooked by the Budget.

Although generous on paper, the exclusion of families with a single breadwinner and the awkward exclusion of families where “the women earns more than €3,000 upwards” (whatever that means), seriously limits the reach of this benefit.

Subsidising minimum wage

One serious reservation I have on this Budget is that it is effectively subsidising low wages through government expenditure in a way which could be actually depressing wages.

One may see this as a way of socialising wage costs in a way that benefits private enterprise.  Instead of making work pay by increasing the minimum wage, the government is using taxpayers’ money to make up the difference between a minimum wage and a living wage.

Probably this will reduce pressure on employers to increase wages, but could make the poor even more dependent on State hand-outs. The fact that these benefits are not universal makes them weaker to defend from a middle-class backlash when the going gets tough.

Coupled with the reduction in income tax for high-income earners, the long-term sustainability of this model raises doubts.

The only measure hitting the rich is that aimed at tapping income from the increased number of swimming pools, which will also result from the dismantling of planning policies that limit development in the countryside.

Passport sale

What seems to have made increased benefits for the least well-off possible is also money from the sale of passports. The budget refers to IIP processing fees of €10 million from Identity Malta, and to €15 million directly from the sale of passports. This alone makes possible the €11 million spent on the child supplement and “in work” benefit schemes. 

The problem for Malta will be if other countries start selling their passports at more advantageous conditions thus undermining our scheme. In the short-term the government has so far bought valuable time to make up for loss in revenue from the tax cuts carried on from the previous government.

Without the passport sale, the government would be facing the same dilemma faced by other European governments:  that of choosing between increased taxes or cuts in expenditure. 

The aversion towards a universal second pillar coupled with incentives for private pension schemes is socially regressive.

The strategic importance of the scheme makes the government’s reluctance to publish its agreement with Henley even more suspicious.

Pension planning

Another example of a lack of long term planning is the government’s insistence that a second pillar pension scheme is not necessary. Instead of ensuring the sustainability of pensions for the working class through the establishment of an obligatory pension fund, the government is offering tax incentives for private pensions.

The aversion towards a universal second pillar coupled  with incentives for private pension schemes is socially regressive.

All in all this budget once again proves Joseph Muscat’s ability to postpone the choices crippling other social democratic governments.  The question is for how long he can do this. Or rather, what’s next in the magician’s  bag of tricks after the sale of passports runs out of steam? And which demons will be conjured next  to appease the prejudice of labour’s right wing?