Judging by the government's reaction to the latest warning by the European Commission over the island's public finances, it would seem the word urgency is losing its meaning. It is true the Commission is taking a long-term perspective and that the urgency for reforms it is stressing has, therefore, to be considered within this context but, on the other hand, the fact that it has now included Malta in a group of 15 members facing the largest sustainability challenges means it is not happy with the way the government is handling the situation.
Had it been satisfied with the progress made so far, it would not have taken this step. So, on the basis of the repeated warnings given by the Commission and, also, by the International Monetary Fund and others, it is somewhat difficult to completely take at face value the Finance Minister's declaration that the matter is under control. He would need to back this up with facts to put at rest the minds of those who have been objectively analysing the growing costs of the welfare system.
The Commission has said that, in the group of 15 countries facing the largest sustainability challenges, "the increase in government spending in aging-related categories is likely to be very significant (seven percentage points of GDP or more) and that "immediate reforms in pension and healthcare expenditure are necessary". It goes on to say that the reforms to the pension and healthcare system should be approached with urgency. Yet, the Finance Minister has now been quoted saying in his reaction: "These comments have appeared regularly in every report on Malta. They come as no surprise and it is not a matter of taking corrective measures in the next Budget".
He remarked that the government had already undertaken pension reform three years ago by raising the retirement age from 61 to 65 years. This does not give any indication as to what time frame the government has in mind for the carrying out of the rest of the pension reform contemplated when it launched the first phase (pillar 1).
The Prime Minister, Lawrence Gonzi, was a bit more specific when he said that a team under the direction of the minister responsible for social policy had now started taking stock of the pension reform and they would be considering whether the time was ripe for some fine-tuning, particularly with regard to the introduction of the second pillar - private pension schemes with contributions by employees and employers to supplement the state contributory pension. However, by including Malta in the group of 15, the Commission is now telling the government to move on. As to the equally politically sensitive matter of this both political parties have committed themselves to ensuring that this remains free to all. The Prime Minister remarked on Sunday this was a choice that could be sustained through further economic growth. Other countries, he said, preferred spending money on weapons and warfare. Well, yes, theoretically speaking, healthcare can very well be sustained through economic growth but what are the chances for Malta of generating a growth rate strong enough to meet the ever-growing bill?
The welfare system would have to be put on stronger foundations to ensure the protection of the weakest members of society. Dismissing the sense of urgency implied in the EU Commission's warning could unwisely lead to delay in the carrying out of the necessary reforms.