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4 OPINION 29.10.2020 THE 2021 budget has targeted the first and hardest hit house- holds. e main objective was to avoid vulnerable communi- ties ending up bearing the eco- nomic brunt of the crisis and prevent slippage into poverty levels. e plan of supporting those categories by guaranteeing a basic income and lowering their tax burdens appears to be indicative of a radically new approach to public spending: that of trusting the ability of the lower and middle income households to drive and sup- port the economy, or "trickle up economics". Lately, figures have not been encouraging. e most recent Labour Force survey has indicated that the monthly basic salary of em-ployees in the second quar- ter of 2020 dropped by 8.6%, when compared to the previ- ous year. Moreover, the num- ber of average actual hours has gone down from 39.6 in April and June of 2019 to 34.1 in the same months in 2020. is means people are both working and earning less. e pandemic has, to a large extent, exposed the fragility of our social safety net. e most illustrative example is the wage supplement scheme of €800, which exceeded the monthly minimum wage by €23. In this respect, it may also be said that the pandemic has ac- celerated the effects generated by Malta's rapid economic ex- pansion, which was already re- sulting in increased difficulties for the lower-income catego- ries and the noticeable falling behind of the lower-middle class. Moreover, social inequal- ity was characterised by a strong generational dimension. Among those facing the harsh- est consequences were the young, as it became obvious that they were inheriting an economic system which would not grow that rapidly for them, as it did for their parents and grandparents. For these categories, the problems had started well-be- fore the outbreak of the corona vi-rus pandemic. Government appears to have now taken note of this reality, and is responding through a set of targeted measures which are mostly meant to avoid the worsening of the economic and social crisis. e extension of the wage supplement and the income tax refund schemes will sus- tain those individuals who are at risk of losing their job, whilst the increase of the VAT ex- empt threshold from €20,000 to €30,000 and the broadening of the in-work-benefit scheme cri-teria (aimed to assist cou- ples and single parents who are employed and have dependent children under the age of 23) are measures to prevent house- holds from sinking into further economic hardship. But should assistance be tar- geted solely towards the lower income-earning households? Clearly, the difficulties are not limited to these groups. e middle-class, which in Malta translates into all those individuals earning between €15,000 and €40,000, may also require support to maintain their economic weight. Keeping the same lifestyle will be a challenge for individ- uals whose income has stag- nated, particularly as costs of housing and education keep taking a large portion of their earnings (housing, by itself, may take up as much as one- third of disposable income). Handouts for these catego- ries, however, might prove to be both expensive and ineffec- tive. A solution for such income groups might lie in the pro- vision of improved and bet- ter-quality public service, ca- pable of reducing their overall costs and saving, as much as pos-sible, of their dispos- able income. Future policies would, therefore, have to be targeted at providing afforda- ble accommodation for the middle classes and raise the quality of public hospitals and schools. e measure of dedicating €20 million in funding to en- sure state schools adhere to COVID-19 protocols might be taken as a possible sign in this direction. Of course, the strengthening of such public services requires a steady stream of fiscal rev- enue, which will inevitably be narrowed by the lowering of the tax burden on labour in- come. e system will, there- fore, come to depend much more on the taxing of capital gains, property and inher- itance. In this light, the measure to widen the tax-free threshold on inherited property and ex- tend tax reductions on sale of property appear to be in con- flict with the direction suggest- ed by this budget. e key fact, however, re- mains that the pandemic ap- pears to have drawn our at- tention to the symptoms of inequality which had started manifesting themselves in the Maltese economy, even before the COVID-19 outbreak. In a way, these challenging times are giving us the opportunity to heal some of these chron- ic illnesses and enabling us to become a radically fairer and more sustainable society. Kurt Xerri Kurt Xerri is a member of Rethink, a social policy think tank • info@rethink.com.mt Is the 2021 budget an exercise in trickle-up economics? Keeping the same lifestyle will be a challenge for individuals whose income has stagnated, particularly as costs of housing and education keep taking a large portion of their earnings

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