Issue link: https://maltatoday.uberflip.com/i/958047
10 O n Sunday Prime Minister Joseph Muscat turned the guns of economic logic against what he denounced as the "racist and xenophobic" comments towards foreigners following the death of Zack Meli, the 24-year-old man who lost his life in Paceville a week before. It was a timely reminder to the Maltese that they owe a large part of their present prosperity to for- eign workers and should be wary of killing the goose laying the golden eggs. "Like every country which becomes wealthy, we need to attract people who do certain kinds of work, and these people are themselves creating wealth – they are paying National Insurance, and since many will leave within six or seven years, they will not even re- ceive any pension." Muscat added that Malta no longer had a pensions problem be- cause so many people were paying NI, and instead the government could increase pensions every year. Basically what the PM is saying is that by opening up our labour market to foreign labour we have managed to rake up more contri- butions and this enabled us to do away with the need of painful pen- sion reforms, like introducing a mandatory second pillar pension scheme or increasing the age of re- tirement further. Yet will this make Malta more dependent on the economic sec- tors which fuel the need for foreign labour, namely construction at the lower end and gaming and finan- cial services at the higher end? And can Malta sustain an ever-growing population? A rentier way of life? Labour MEP Alfred Sant agrees that in theory the influx of foreign- ers can positively contribute to the sustainability of the pension sys- tem. "If foreign workers do not then stay on and access their pension entitlements, in theory this should lead to less pension payment pres- sures on the financial system over the medium to long term," Sant told MaltaToday. But the Former Labour leader also sees risks in Malta becoming too dependent on foreign Labour. "Does it mean that this country will end up like an Arab Gulf state, which depends on transitory hu- man resources to fuel economic surges whose final outcome is un- known?" he asked in article penned in the Independent in September. The tempting ambition for a small island society like Malta "has always been to acheive a 'rentier' way of life, that the presence of for- eign workers encourages further." Still Malta's best guarantee for the future is to achieve excellence in educational achievements and technical skills for the whole of Maltese society, a long term pro- jects which provides "very limited to zilch in terms of short term po- litical dividends." Malta's major shortcoming re- mains its "relative insuccess" in im- proving educational and technical achivement across the board. "This problem was been masked by the very high levels attained by a significant minority", Sant adds. Saving for a rainy day For economist Gordon Cordina the priority should be investing the dividends from the current eco- nomic boom in the sustainability of our pension system. When asked whether we can do away with the need of a second pil- lar pension fund thanks to the cur- rent bonanza, Cordina was skepti- cal. "I do not perceive mandatory second pillar pensions as a meas- ure to avoid." A mandatory second pillar pen- sion fund would see employers and workers being obliged to pay an amount over and above their cur- rent National Insurance contribu- tion to ensure the sustainability of future pensions. The measure was seen as the next logical step for pension reform by the previous PN government which never got to its actual implementa- tion. But it has been excluded by the present administration which has banked on increasing the number of contributors, through greater female participation and the increase in foreign workers. Cordina sees a second pillar as a potentially important supplement to increase and diversify retire- ment incomes, provide a pool of savings to invest in national devel- opment and to relieve some of the pressure on the real estate market as the main vehicle to invest to- wards retirement. Cordina's recommendation is that of using "the wealth created by the ongoing strong economic growth, sustained in good part by labour immigration, and reflected in a fiscal surplus", to kick-start and bolster funded pensions. This can be done by providing generous incentives to workers saving in them (and to their em- ployers), particularly to those with relatively low incomes and issuing saving instruments with attractive rates of return for the exclusive use of such pension funds. This could also help insure re- tirement income against future economic risks to growth and mi- gration patterns, Cordina says. Is Malta full-up? Between 2012 and 2016 Malta has seen its population rise by 40,000. This increase in popula- tion coincided with a construction boom which has turned localities like Gzira into permanent con- struction sites. Concern on social, environmental and infrastructural problems have also increased. M a l t a T o d a y ' s maltatoday SUNDAY 25 MARCH 2018 Analysis They came, they paid… Foreign workers in Malta All EU Non EU December 2008 9821 5055 4766 December 2012 14633 9371 5262 July 2015 27145 19179 7966 September 2016 34157 25115 9042 March 2017 37717 27334 10383 Most foreign workers stay here for a few years, pay rent, social insurance contributions and taxes and leave before receiving a pension. But what would happen if they all suddenly leave and is Malta big enough to sustain an increase in their numbers? James Debono probes the issue sustain an increase in their numbers? Sociologist Godfrey Baldacchino comes up with a thought-provoking solution to Malta's current impasse. "Is it time to start thinking seriously about offering to buy Pantelleria from the Republic of Italy?"