European Commission vice-president Valdis Dombrovkis drew some flak for his warning that Malta needs to move on in its work to ensure the long-term sustainability of pension and healthcare systems.
Some took offence, believing perhaps that, in light of the economic progress being made, Malta could do without such warnings. One respondent even labelled the remarks clichéd.
There is no question that Malta is doing well on the economic front. The deficit and national debt are being reduced and the economic growth rate is higher than the euro area average.
As Malta has now corrected its excessive deficit, the European Commission is even recommending the closure of the excessive deficit procedure against the island, as announced in the latest country report. However, while the report chronicles the progress being made in various aspects of the economy, it also highlights a raft of challenges.
If the European Commission and other institutions keep stressing the need for Malta to seriously think about the future sustainability of the pension system and healthcare, it is only because they firmly believe in the assessment they are making of the dangers involved if Malta does not act in time.
If their remarks have become clichéd, it is only because the problems have not yet been solved, not because they do not make sense. Even if the government keeps reducing the deficit, it is no reason not to tackle the long-term sustainability problem in the two key sectors.
As the Commission points out in its country report, the strong economic performance is masking important inefficiencies. Quite a few of the challenges it is focusing on have been present for quite a long time. Some are now being addressed but progress in others, such as in the judicial system, is often erratic.
A pick from the list indicates the breadth of the task at hand: loss of export market shares; sluggish productivity performance; misalignment between productivity and wages; investment stagnation in the private sector; shortcomings in business environment and Labour market participation; road transport congestion; tax compliance evasion; rise in unit labour cost; lending stagnation; inefficient government bureaucracy; high cost of financing; and bottlenecks in education system.
The Commission zeroes in on each aspect of the challenges and makes its recommendations. Besides strictly keeping to the deficit reduction programme, two of the biggest challenges remain the future sustainability of the pension and healthcare systems.
In the words of the Prime Minister, the government is addressing the pension system sustainability problem by raising the female participation rate, creating opportunities for an ageing workforce, and urging people above retirement age to remain in employment. More women are joining the labour force, however, it is unclear if this and the rest of the government’s “sustainability” programme will yield the results it expects, both in the medium and long term. The government is firmly against the introduction of the second pillar pension, arguing that this is not affordable to thousands of workers and to the private sector. The Opposition thinks differently, arguing that the second pillar is more equitable and has a stronger sustainability base.
As for the healthcare system, the Commission makes it clear that inefficiencies and shortcomings in cost effectiveness threaten its long-term sustainability.
Unless urgent action is taken to correct some of the shortcomings and problems highlighted in the country report, these could create obstacles to future growth.