Issue link: https://maltatoday.uberflip.com/i/741600
9 maltatoday, SUNDAY, 23 OCTOBER 2016 News THIS IS A PAID ADVERT Muscat's narrative is always geared to make his electoral bloc gel – both working class and business interests seemingly partaking from one large cake News No income tax for pensions up to €13,000 @MaltaGov tors. It is a propitious alignment of the stars for Labour. No won- der the government continues to fuel the construction boom through new measures like tax exemptions on property acquisi- tion in Gozo. Bizarrely, the new tax on non- alcoholic beverages – expressly labelled as "not being a sugar tax" by Muscat – exempts the mineral water that is being extracted for free from public groundwater sources and now even given for free in supermarkets for large purchases. On one hand, the nanny state 'penalises' consum- ers of beverages that may (or may not) include sugar with a higher excise tax and fines mo- torists smoking inside cars carry- ing children; on the other hand, big business that extracts water from the national groundwater resource is not charged or con- trolled. Clearly, the message is that any upset in the sectors currently driving economic growth could endanger the sustainability of top-ups for low-income earn- ers. This ultimately makes us more dependent on the undesir- able consequences of economic growth, namely endless con- struction, heavier congestion and traffic and growing inequali- ties of wealth. Even when it comes to rents the government will be increas- ing rent subsidies in a way which may well end up lining the pock- ets of property owners, who have no incentive to reduce rents. The subsidies will be inflationary without effective controls. But Muscat also knows that Malta has a large number of property owners who benefit from such policies. In this way Muscat has found a way of keeping everyone happy by dish- ing out more state cash. Muscat can get away with this (along with the ris- ing cost of ram- pant crony- ism) for t h e s i m p l e a n d important reason that the gov- ernment deficit remains in con- trol: who needs austerity when the country's finances are in a good state? But is this sustainable in the long term? Does Muscat risk fostering new dependencies by shifting all social costs on to the state? Moreover inflation, which is driven by the influx of highly- paid, skilled foreign labour whose demand to live in gentrified areas drives up property prices, may well further erode the purchasing power of low-income earners or a part of the middle class. A €4 weekly increase for minimum wage earners through top-ups may well not be able to compen- sate for rising costs. Socialising labour costs What the government is effec- tively doing through top-ups is to socialise part of the employ- ers' labour costs, freeing up em- ployers and business from the obligation to provide decent liv- ing conditions for workers. One advantage of this is that busi- nesses relying on cheaper labour will not suffer from higher labour costs, remaining competitive while the economy still benefits from the multiplier effect of in- creased spending by lower-in- come groups. The catch is that the current phase of economic growth will not be reflected in an increase in Maltese wages. For if the mini- mum wage had to be increased, it would trigger a domino effect on wages in general. One major structural weakness is that top- ups are not reflected in future pension earnings, which creates a greater risk of impoverishment at old age. Expecting low-income earners to spend their top-ups in private pension funds, as suggested by Finance Minister Edward Sci- cluna, is ludicrous. And the gov- ernment's refusal to introduce a compulsory second pension pil- lar, suggests that for Muscat elec- toral cycles are more important than the long-term sustainability of current living standards. jdebono@mediatoday.com.mt Expecting low-income earners to spend their top- ups in private pension funds, as suggested by Finance Minister Edward Scicluna, is ludicrous Need to know • Key highlights of Budget 2017 were a series of top-ups aimed at low-income earners and pensioners • PN leader Simon Busuttil says the budget failed 'the Caritas test' as Muscat refuses to raise minimum wage • Instead all taxpayers 'share in the prosperity' and finance the State-funded top-ups, but are businesses paying their fair share? • Muscat 'keeps the party going' for business as he basks in a climate of low oil prices that allows him to forgo austerity measures • Even rental subsidies are critcised by anti-poverty campaigners, for their inflationary effect Hold your horses! Robin Hood gets the memo from Castille: stop robbing the rich