Can Labour tweak the model that drives growth?

The overall picture from the latest MaltaToday survey indicates that the Maltese are less concerned about traditional “bread-and-butter” issues like jobs and low incomes and are increasingly worried on the repercussions of the current economic model.

The primary worries include the rise in foreign workers (22%), traffic congestion (21%), excessive construction (10%), and overpopulation (8%). Even the two key issues not directly linked to the economic model—corruption (14%) and the cost of living (10%)—may be connected to rising inequality and regulatory loopholes that benefit certain groups, as well as gentrification pressures particularly in areas with a concentration of affluent foreigners.

In contrast fewer than 2% cited low wages as a concern while the percentage of those who mentioned the cost of living declined by 19 points since February. This suggests that the government has managed to alleviate basic economic anxieties.

Noticeably absent from the list of top concerns are energy bills (controlled through government subsidies), poverty, and the inability to make ends meet. This marks a shift from the pre-2013 landscape when dominant concerns centred on energy bills and the cost of living.

Foreigners as scapegoats?

However, an alternative interpretation could be that working-class respondents are more likely to blame foreign workers for their financial struggles rather than low wages offered by employers, possibly because of the decline in trade unions and class consciousness.

This could be even more the case among manual workers. Concern over foreign workers is notably higher among the secondary-educated (28%) who are more likely to engage in manual labour, compared to those with post-secondary (21%) or tertiary-level education (17.5%).

working-class respondents are more likely to blame foreign workers for their financial struggles rather than low wages offered by employers (Photo: James Bianchi/MaltaToday)

On the other hand, concerns over ‘overpopulation,’ which is more tied to infrastructure and environmental strains, are more prevalent among the tertiary-educated (13%).

Yet while antagonism towards foreign workers may have become an outlet for other frustrations, the survey suggests that by subsidizing energy prices and sustaining welfare and in-work benefits for lower-paid employees, the government is managing to keep a lid on material grievances.

However, this balance hinges on sustaining current levels of economic growth, which have so far supported social spending without necessitating higher taxes.

Financing the tax cut

However, the government is now planning to reduce its tax revenue by €100 million through tax cuts aimed at boosting the standard of living for the middle class, including the often-overlooked lower-middle class.

Simultaneously, the government has pledged to address public concerns by reducing the inflow of foreign labour. The question is; could this clampdown on foreign workers—key contributors to Malta’s record economic growth over the past decade—jeopardize the very expansion needed to sustain ongoing social spending and upcoming tax cuts?

The administration may still tweak the economic model and garner support by taking symbolic actions, such as targeting the most visible categories of foreign workers like platform workers and rejecting the most controversial development projects, while keeping the broader system intact.

Parliament (Photo: James Bianchi/MaltaToday)

Just last week, the government announced that, since July 1, the number of third-country nationals employed as food couriers or holding a Y-plate license has decreased by 587.

But these represent only small minority of foreign workers residing in Malta. Moreover, by focusing on failed asylum seekers—some of whom, like the Ethiopian community, have resided in Malta for two decades—the government may also be more interested in placating public sentiment, without significantly altering the wider economic picture.

While the government appears responsive to public concerns in its media sound bites and symbolic measures, it remains doubtful that it will fundamentally reform the current economic model, especially on the eve of tax cuts that heavily depend on sustained economic growth.

Coupled with this is increased pressure to increase spending on public projects to address infrastructural and environmental concerns. This raises the question whether Labour can actually square the circle by sustaining public spending and cutting taxes while at the same time clamping down on foreign labour.

The clampdown on evasion

But an alternative approach might see the government raising more revenue by intensifying its clampdown on tax evasion and the black economy.

Finance Minister Clyde Caruana recently announced that the government is on track in collecting an additional €200 million in tax revenue over last year’s figures, achieved through curbing tax evasion rather than relying on economic growth alone.

Finance Minister Clyde Caruana speaking during Budget 2024 (Photo: James Bianchi/MaltaToday)

The proposed measure to stop employers from paying salaries in cash announced by the Prime Minister on Sunday, could also be a move in this direction, even if it could effectively further marginalize asylum seekers who find it difficult to open bank accounts.

But additional revenue from this clampdown could provide the government the flexibility it needs to recalibrate the economic model without causing major disruptions.

But pressures to promote the growth required to finance both tax cuts and increased social and infrastructural spending, could weaken the resolve to combat abuse both with regards to taxes and the employment of third country nationals.