The starting gun may have been fired at a national seminar on pensions reform held last June by PKF Malta. Then, one wondered whether the occasion would start a movement towards the implementation of pension reforms that have been discussed for the past decade? Members of the panel at the seminar thought the event signalled the intent of the government to issue a long-awaited White Paper on the subject. Such a White Paper would need to address unpopular measures aimed at raising labour market flexibility to achieve a restructuring and renewal of the mandatory pay-as-you-go pension scheme which has remained largely unreformed since its inception in 1979.
To make the pensions scheme sustainable, more workers need to be contributing or else the present mandatory social contribution rate of 20 per cent, presently shared equally between workers and employers, will have to jump to 33 per cent. Undoubtedly, this would be one of the least popular reforms expected of the welfare reform commission as workers are unhappy with any increases in contributions or cutbacks in benefits.
Only by generating a higher GDP per capita can we ease the financial millstone around our necks, that is the structural deficit and the welfare gap.
Due to the drop in birth rates there will never be enough workers in the next decade to sustain the ever-growing army of pensioners. Even without more immigration, increasing the domestic supply of young workers - having more babies - is not likely given that the trend is for smaller families. This demographic trend is coupled with a healthier and longer life, meaning more pensioners. Remember the baby boom of the 1960s - the overall birth rate in the European Union then was 2.7 children per woman but this dropped to 1.5 children per woman in 1995.
Economists recommend that as part of the solution we need to encourage more women to participate in the labour supply. So why is the ratio of female workers so low in Malta? According to a study by Godfrey Baldacchino the female participation rate hovers at about 33 per cent. At this rate Malta ranks lowest among all the EU's member states, accession states and candidate countries. Women's share of total employment remains a low 29 per cent while local female self-employment is also very low, standing at just five per cent.
The study finds evidence of women who are prepared to take up economic activity so long as this does not clash with family responsibilities. It also suggests that the actual female participation rate of women in Malta is some nine per cent higher than what official statistics indicate.
Suggestions for improving participation include lowering of levels of taxation and of social security contributions. The latter acts as a disincentive to women - both to enter the labour market as well as to declare their income should they do so.
Why not open more child care centres - such as the one in Bulebel industrial estate - which will be professionally run and affordable? One notices that the number of one-parent families is increasing. There is an urgent need to reform social policy in Malta to better respond to these family patterns. A high percentage of one-parent families is headed by a woman. Thus, specific attention and action are needed to improve the employability and the situation of single parents.
There is the need for higher education and quality training, high-quality accessible and affordable child care provision and support in connection with single parents empowerment programmes.
Social Policy Minister Lawrence Gonzi, has said his ministry intends to ensure that the new employment and industrial relations law will mean a higher overall participation rate but, more importantly, a higher participation rate of women in our labour force.
Women intending to work find child care centres a godsend but they may not be enough to encourage some of them to take a job outside the home. In the near future, a scheme partly funded by the EU will be launched providing support to parents choosing to work outside the home.
In Malta the reason for the plummeting birth rates may have something to do with the choice to follow a career path already forced on too many young women. After following a university course it would take some years until a woman advances on a career path. Consequently, they put off child-bearing until much later in life. Many lament that the participation rate of women in the commercial arena is low but then do nothing to encourage them to have children and concurrently pursue a career.
Another very important fact which needs to be considered is that since 1980 there have been more females graduating every year than males. So why are we wasting such intellectual talent when the costs of tertiary education are so high? Economists argue that once so few female graduates fail to join the workforce, then measures ought to be taken by the Employment and Training Corporation to mitigate the resistance to mobilise such talent. Can we afford to reverse the clock to the days when, due to the fact that the emancipation of women was still in the early stages, their participation at work was conspicuous by its absence? Certainly not.
The budget for 2004 ought to introduce reforms to the tax system advancing tax credits to working women and encouraging single parents to start working by giving first year tax exemption and subsidised access to child care centres.
Should we revise the present children's allowance scheme to encourage a higher birth rate?
Both measures come at a cost to the exchequer but in the long run they will balance out and reap rich dividends to the state coffers.
Budget speeches gallivanting about short-term measures are loquacious - reactive and not proactive. A proactive approach is extremely important for a variety of reasons, because we have gargantuan challenges; the sustainability of the welfare system, a dysfunctional health care sector, unbridled subsidies to parastatal entities, a lacklustre performance in the tourism sector, a deficit exceeding eight per cent of GDP and the overvalued lira.
Just give a thought to the undisputed fact that we need to generate another 65,000 jobs over the next 10 years just to balance the loss of workers arising from the dwindling birth rate factor.
Effective fiscal stimulus as has been employed by economies in Germany and France is a quintessential factor to attract foreign direct investment and revitalise employment prospects. Sooner rather than later, the welfare reform commission will have to wake up to face the unpalatable truth that while the current pension structure is not sustainable, encouraging more mothers to join the workforce and, hopefully, improve the dwindling birth rate is one practical way to solve the problem.
Mr Mangion is partner at PKF Malta.
gmm@pkfmalta.com