That ubiquitous poverty line

People defined as ‘at risk of poverty’ in the EU and Malta are those with 60 per cent of the median – a bit different to average, but essentially the same – income. For want of a measure or definition this may be useful. Some kind of benchmark is better than nothing at all, but this benchmark has fundamental problems.

First of all, this is only an indication of people ‘at risk of poverty’. People below this level of income are not necessarily actually poor; just at the risk of becoming poor. Nor does it indicate at which income people can definitely be said to be poor.

Secondly, the 60 per cent factor is arbitrary and leads one to ask: why not 50 per cent, or 70 per cent, or 54.321 per cent?

Thirdly, prices and inflation have no bearing on this measure. If prices of essential products increase at a much higher rate than the median income, low income earners would be worse off. But according to this measure, fewer people are at risk of poverty. The opposite is also true: a drop in prices of essential products has no effect at all on this poverty-risk measure.

Fourthly, this rate measures one’s risk of poverty in relation to other people’s income, not in relation to one’s own.

So if other people’s incomes increase and nobody else’s drops while one’s own income increases at less than 60 per cent of the median increase, one might suddenly be classified as newly poor even though no one in society as a whole is worse off.

Even worse, the opposite is also true. If the income of a person, already defined as ‘at risk of poverty’, stays the same while other people’s incomes drop, this citizen suddenly moves away from the poverty line just because the median income has decreased – even though this person is actually worse off.

Let’s take a simple case of vanishing poverty: five people in a village earn €10,000, €8,000, €6,750, €5,000, and €4,000. Since 60 per cent of the median is €4,050, one is ‘at risk of poverty’.

How can this be tackled? An increase of €100 in the lowest income would mean no one is at risk of poverty. But another solution is to reduce the median income by €100 and, hey presto, the problem vanishes without an increase in anyone’s income!

The real problem with the EU’s ‘at risk of poverty’ yardstick is that it is not a measure of poverty-risk but a measure of inequality. That is why it is so loved by the left. It has a fundamental flaw that leads to two outcomes being equally acceptable: everybody is equally rich or everybody is equally poor.

Malta’s ‘poverty-risk’ rate of 14 pc is lower than the European average. The median income is increasing as skilled and graduate youngsters get better wages because of the new type of jobs being created. This increases the median income and hence the poverty-risk rate without anyone being actually worse off.

What we need – together with the EU measure that should not be disregarded despite its flaws – is something similar to the measure of the poverty line in the US. This is a much more detailed calculation of the cost of essential products and services one needs to be able to live acceptably out of poverty. This would, of course, have to take into consideration services that are free in Malta: public healthcare and public education to tertiary level where students are actually paid stipends.

One can then examine what measures need to be taken in our social benefits system to bring everybody above the poverty line.

The reasons for poverty are many and the solutions have to be many.

In Malta, the minimum wage is actually the highest in the EU ­relative to average income. Where there is a problem is in circumstances where people have to rent property at market prices rather than pay protected rents or own their home.

Can we therefore conceive a system that subsidises market rents so that while those at risk of poverty are not discouraged from working, they are supported if they have to pay a rent at a realistic commercial level?

In the case of single mothers, the challenge is to devise a childcare support system that does not discourage them from working; while the elderly should be supported via a system of insurance to cover needs outside the free medical system.

This is not achieved by establishing a ‘living wage’, which means that at the lower end of the scale, one’s income does not depend on the type and utility of one’s work and what demand there is for it, but according to what a committee or some politician decides.

The ‘living wage’ is very much a modern version of Karl Marx’s idea: ‘From each according to his ability, to each according to his needs’, with what one earns bearing no relation to what one does.

This just does not work, as experience has shown in so many communist countries and in Malta in the days of Mintoffian socialism.

micfal@maltanet.net