More people working, delayed retirement, eased benefits spend

Malta’s outlay on social benefits and pensions has fallen from 30% of its government spending to 21.7% over an entire decade since 2013.

The data, issued by the Central Bank of Malta, shows a gradual easing of benefits spending when compared to economic growth, with benefits in 2013 averaging just over 12% of GDP, and now down to 8.5%.

It also shows that spending on pensions has effectively increased, with increases to pensioners granted in almost every single Budget since 2016.

This reflects the effect of measures since 2013 that have boosted labour market participation, chiefly by having more women enter employment after motherhood and retain more elderly workers past retirement, as well as a gradual increase in pensionable age, and the tapering of benefits to retain more claimants in jobs.

At the same time, buoyant economic activity and tight labour market conditions contributed to lower spending on unemployment assistance, changing the composition of social benefits.

Spending on social benefits includes pensions, unemployment benefits, child allowances, and the in-work benefit. Expenditure on benefits in kind mostly reflects the provision of goods such as medicine, and services such as childcare, school transport and public transport. The share of outlays on unemployment assistance and cash benefits, excluding pensions, declined from around 25% of total benefit spending before 2013, to around 18% by 2022.

On the other hand, spending on pensions rose from around 70% of total benefit spending to just over 71% by 2022. This is partly due to a series of increases in pensions, given out every year since 2016.

In the same period, the share of outlays on benefits in kind more than doubled from around 4.5% to just below 11%, mainly due to free school transport and the provision of free public transport to holders of the Tallinja Card.

The Central Bank however says spending on social benefits will grow at a declining rate in the coming years, with the share of benefits to GDP falling from 8.5% in 2022 to 8% in 2026.

“As a result, cash benefits excluding pensions and unemployment benefits, are set to amount to around 1.2% of GDP in 2026, down from 1.5% in 2022. Pension expenditure is however set to broadly amount to just below 6% of GDP throughout the projection horizon.”

Beneficiaries are also set to grow at a broadly constant rate in the coming years, except in 2026 when growth is set to be slower. This is due to the coming into force of the final mandated increase in the retirement age, to 65 years.