Bread and sustainability

The removal of the subsidy on flour used for the production of bread must have looked like the proverbial Maltese saying - a flash of lightning in fair weather. It looked so because the speech of the President at the opening of Parliament, which is really the government programme for the legislature that has just started, emphasised the need for sustainability and the need to balance economic, social and environmental requirements in whatever we do.

One might ask how one can speak of sustainability, when one removes a subsidy on one of the most basic commodities, with the consequence that the price of bread is bound to increase.

The point is that the subsidy on the price of flour needed to be removed in the name of sustainability. Strange as it may seem, this is indeed the case and claims to the contrary are nothing more than attempts to score political brownie points. I strongly believe that the subsidy on flour, and therefore on the price of bread, was a regressive policy. This is because whether one earns €40,000 or €25,000 or €10,000, or possibly even less, one had access to the same amount of subsidy. Thus it was a benefit of equal amount for both rich and poor alike, with no distinction whatsoever.

Any student of economics would tell you that when the government charges the same amount of tax in absolute terms, irrespective of what one earns, one describes that tax as regressive.

Thus when a subsidy is available to the same level to everyone, irrespective of what one earns, then it is equally regressive. Such a subsidy becomes even more regressive when one considers that the government and we as a country, struggled to rein in the fiscal deficit to sustainable levels. We were effectively experiencing a situation where, through such a subsidy, scarce resources were being directed towards persons who did not need them.

On this basis, the link between the removal of the subsidy in flour and sustainability becomes very evident.

To be able to continue funding the whole of the welfare system, and in particular the myriad of social services and the health system in a sustainable manner, we need to remove (not reduce) expenditure that is not necessary or that is not based on the principles of social justice.

I can understand the expectations (and in fact I actually even agree with such expectations) that the government continues to seek increased funding for those that truly require assistance to get to the end of the month with their current income; but these expectations can only be met and sustained if we save money from other forms of public expenditure.

We have a parallel situation in the health sector. We all have access to the health system in an equal measure. However, those who can afford a particular type of health insurance policy, end up being better off financially if they need to be hospitalised, than those who cannot afford it. Thus the way the system works goes against the interests of the poorer.

Apart from the fact that the subsidy on the flour to everyone, irrespective of the financial needs of the individual, is regressive, one must also keep in mind what is happening internationally. The price of oil has hit another record high at US$130 per barrel, at the time of writing.

The shortage in the production of cereals and crops will be with us for some more years to come. Thus there will always be a limit to the extent that any government can continue to provide subsidies in the long term. Those old enough to remember, know the difficulties most families went through when we had the first hike in the international price of oil in 1974.

We still remember, and up to a certain extent some are still feeling, the effects of the international economic slowdown of 2001- 2004.

To get to the economic growth of today, we had had to sweat it out and this is why I have always claimed that we should never take it for granted.

Credit must go to the Prime Minister, who during the election campaign was the only person to speak of the threats that the international economic situation is posing to our country. These threats are getting closer to our shores, and therefore digging our head in the sand and expecting to ignore what is happening beyond our shores is short-sighted.

I feel that social sustainability cannot be achieved by continuing to have charity handouts. We need to have a real look at the way our welfare system works, and make some dramatic changes to it, such that the state can afford to provide help to those persons that really need it to a sufficient level and so that this help can be sustained in the long term. Those who do not really need it, have to understand that they must start making their contribution to society and the economy.