Reforms to favour lower income earners

Tax cuts have more of an impact on higher income earners than on those who earn less – which is why the government had opted for specific structural reforms which have the opposite effect, Finance Minister Edward Scicluna explained on Tuesday, 26th September.

He was speaking at a business breakfast for representatives of the constituted bodies like employers’ associations and unions, to explain the rationale behind this year’s Budget, which has the theme of ‘Prosperity with Social Justice’.

Prof. Scicluna made it clear that Budgets were not mere financial exercises but that they should also be used as economic instruments, giving several examples of how structural reforms had been aimed at specific economic targets – such as preventing youth unemployment, getting more women into the workforce, and weaning  people off benefits.

He illustrated his two-hour presentation with numerous graphs to show the results of these reforms, stressing that the best indicator was to gauge economic activity: the number of people able or willing to work, along with those in employment. This, he said, had gone up from 63 per cent in the first quarter of 2012 to around 69 per cent in the second quarter of 2016.

Other indicators were the rock bottom unemployment – including youth unemployment – as well as the number of mothers who returned to work after a career break, which rose from just 31 per cent in 2009 to 51 per cent in 2015, with the increases most apparent since 2013.

Prof. Scicluna said that prior to introducing any Budget measure, the ministry’s economic team used simulations to assess the impact on various categories of society to ensure that it had the expected direct and indirect impact.

This was one of the reasons that the government has been resisting calls to raise the minimum wage, he stressed, replying to a question by Doris Bingley of the National Council of Women.

“We must not forget that it is not the government that pays the minimum wage – but employers. And apart from affecting their competitiveness, there are plenty of studies that show that increasing the minimum wage acts as a deterrent to hiring,” he said.

The government has also been trying to reduce the benefits that act as a disincentive to go to work, and he described the reduction in people on social assistance – down by 1,400 – as a “major breakthrough”, acknowledging that many reforms had not been universally welcomed when they were first launched.

“We were called all sorts of things but we see the increase in the number of single parents in employment as something to be proud of,” he said.

However, he did not say how much the government had saved by getting people off benefits, only saying that the money was being used on more productive things.

He also referred to the recent report on people at risk of poverty and social exclusion, which the two political parties have been quibbling over – with the Prime Minister noting the decrease in the last years, and the Opposition Leader noting it was still higher than when the Labour government came into power.

Prof. Scicluna said that the increases until 2013 were as much about social exclusion as they were about poverty per se, but that the numbers had been falling since then and would fall further.

Vanessa Macdonald

Source: Times of Malta