70 million better reasons?

Injecting €70 million of public money directly into people’s pockets by way of a new round of government grants, vouchers or cheques (apart from tax refunds), so close to an imminent election, inevitably raises the question if Robert Abela’s big giveaway is a simple ruse to ‘buy’ votes.

One cannot ignore that this cash injection, over and above the tax rebates announced in the Budget, comes in the wake of unprecedented inflationary pressures that impacting not just Malta but the whole world.  All this is happening amidst a pandemic which inevitably took its toll on people’s daily incomes.  

Had the government not done anything it would have been accused of being insensitive and lacking in social conscience, choosing instead to let the people fend for itself during hard times. But a moralistic condemnation of cash handouts is itself symptomatic of the frame of mind of people who are cut off from the daily realities of struggling people with low or medium incomes. These people, upon hearing the news, immediately think of how to use this money to buy a necessity or even make those around them happier with a treat or a gift, with the simplest of pleasures being even something like taking out their family to eat a pizza. 

So when people close to the PN like former finance minister Tonio Fenech shoot down such measures, people are immediately reminded of austerity-driven governments who left generally poorer people to fend for themselves, with less money to spend.

One has to remember that it is the relaxation of EU budget rules, thanks to the pandemic, that has made generous public spending fashionable again – not just in Malta but in other EU countries. This is in itself a positive development, away from the doctrinaire imposition of EU-centric rules which crippled southern Mediterranean economies. Not every nation is Germany, an export-driven economy sucking European currency straight into its mega-surpluses.

Some would decry the measures as not being as effective as vouchers in terms of an economic multiplier effect, given that vouchers had to be spent in shops while the hand-outs could end up being saved. Since the hand-outs are primarily a measure to soften the impact of rising prices, these make more sense from a social justice perspective.

Still, there is an argument to be made on whether the €70 million could have been better spent and targeted to make a greater difference for those who earn the least. The latest hand-out does include an element of proportionality, with pensioners being given double the amount.

Yet it does not distinguish between low-income earners who probably need more than €100, and high-income earners who do not even require the money. We might recognise that means-testing could create more bureaucratic complications and possibly injustices as this could benefit people who declare less than what they are earning. Still, a chunk of the €70 million is simply ending up in already full pockets.

And hand-outs only provide an ephemeral respite which does not address structural inequalities and low wages. In the absence of more long-term fixes, the risk is that tax rebates and hand-outs are slowly becoming a regular feature of government policy. At this rate people will start expecting these injections in their income at regular intervals.  Politically this makes people more grateful for government generosity, especially on the eve of an election.

But this approach does not bode well for democracy, as hand-outs could become part of the government’s power of incumbency.  

Would it have made more sense to invest this €70 million entirely in a fund meant to help SMEs who choose to pay their workers a living wage, or to soften the impact of a mandatory raise in the minimum wage, or even to buttress inflationary supply costs (difficult though it might be to guarantee reduced costs for consumers…)? Statistics published by Eurofound show that while on average minimum wages across the EU increased by 6% in the past year, in Malta the minimum wage only increased by 1%. 

Another alternative could be that of injecting the money into a fund to help businesses transition towards an extension of parental leave. In this way the money spent would not simply have an ephemeral effect, but a long-term impact in the necessary transition from a cheap labour economy to one in which work pays well.

Finance Minister Clyde Caruana himself said the advantage of this hand-out is that it assists people without imposing new costs on businesses. But perhaps it is time to use cash to help businesses give their workers their due. For wage costs are bound to increase if we truly aspire for a sustainable and fairer future.

The opportunity cost of a €70 million giveaway will always be the investment that such cash can generate in the long-term. Spending the money to modernize Malta’s mental healthcare institutions and policies, may have had a greater impact for our society, than giving everyone a small cash injection that will be spent in a few hours.  

At his particular juncture, cash still makes a big difference in people’s lives, but it is also our duty to expect governments to assess the social impact of public spending injections. Critics should be wary of dismissing even short-term injections like these, when life itself is made up of a collection of short term moments.

But certainly, there is always the opportunity cost: that of investing a considerable sum of money in social programmes which may change the life of those most in need on a more permanent basis.