John Vassallo (‘The trickle-down economy’, March 24) writes that “perhaps hell does not exist”. I think it does. Apart from cheaters in politics and the private sector, it is also reserved for opinionists who make poor attempts to imitate Dante’s Inferno.
Mr Vassallo always paints a picture where Malta wallows in hell. Because the various authorities in Malta are not independent, he claims, the wealthy will not freely share with the poorer sections of society. As compared to most of the EU, where the authorities and the wealthy are supposedly snow-white and altruistic.
I prefer facts to fiction. Thus, in 2017 the Gini coefficient (where 0 expresses perfect equality and 100 maximum inequality) in the EU28 was 30.7, compared to Malta’s 28.2. That means income distribution is fairer in Malta than it is on average in the EU. Germany and Spain have a ratio of 29.1 and 34.1 respectively.
On the other hand, the S80/20 ratio (a measure of what the richest 20 per cent earn compared to the poorest 20 per cent), was 4.2 in Malta in 2017, compared to 5.1 in the EU. More egalitarian Scandinavia had an average 3.97, whereas Spain had 6.6. Happy? Of course not, but again, that shows Malta to be more egalitarian than the average Europe because the wealth distribution is more dispersed.
Please spare us the fiction that Malta is the worst sinner of the lot. Granted, the gap between the bottom and the top of income distribution has been growing in most developed countries since the more socio-economic equality of the 1980s, the most vulnerable being the elderly and the rather young people and families with children. Even traditionally more egalitarian Denmark has seen its Gini coefficient go up from 20 in 1995 to 27.6 in 2017.
It is not easy to untangle the complex web of factors behind the growing gap between rich and poor. Changes in earnings and labour market conditions have been the most important direct driver of rising income inequality, as the OECD has pointed out. Vassallo does a disservice to the uninformed and deviates the proper debate we should have about policy solutions when he blames it all on unscrupulous politicians and shady business deals. His exaggerations include trampling on workers’ rights, slave labour and all sorts of other sins.
Income distribution is fairer in Malta than it is on average in the EU
The fact is that the share of national equivalised income of the bottom 10 per cent of the population has improved from 3.35 in 2008 to 3.7 per cent in 2017 and has not deteriorated at all in the last five years, compared to a deterioration in the EU and eurozone. And that has nothing to do with the Catholic charity that Vassallo mentions in a sarcastic tone.
The EU Social Scoreboard for 2017 shows Malta scored better than average in seven indicators, namely the S80/20 ratio, the rate of people at risk of poverty and social exclusion (AROPE), the unemployment rate, the long-term unemployment rate, the rate of children under three in formal childcare, of self-reported unmet need for medical care and of individuals’ level of digital skills.
Vassallo sins when he claims there are 92,000 people at risk of immediate poverty. The figure is actually 75,516. The latter shows the extent of real monetary poverty. If one then includes social exclusion, the figure goes up to 87,454. I cannot accept that a former ambassador of Malta to the EU does not know the difference between one and the other. The AROPE rate in 2017 was 19.3 per cent, the lowest in the last five years and five percentage points lower than 2013.
Just to show how the situation has improved, a married couple with one National Minimum pension between them will this year get €9,520, a 13 per cent increase on 2015 and about 58 per cent of median earnings. Not enough but we’re getting there.
It is true we have a considerable number of people at risk of poverty but we also have a good and improving social safety net that helps them cope better with the challenges of life. Making sure that as many people as possible work and continue to enjoy the social safety net, which the in-work benefits and social welfare tapering schemes have done, is one of the hallmarks of the economic success we are enjoying. This has also helped median Net Equivalised Income in Malta to reach the average EU level of €12,190 in 2017.
I cannot but comment on the ‘trickle-down’ title and argument.
Trickle-down economics is short for supply-side tax reforms rooted in changing incentives to work, save and invest, that is, policies to alter incentives to pursue economically productive activities. This is done mainly by reducing marginal tax rates on personal income, thus encouraging work effort and investment in human capital. Unfortunately, it has often been used to convey the idea of money trickling down from higher income to lower income citizens, but it does not figure into these arguments at all.
In fact, trickle-down economics is a nearly perfect description of Keynesian economics, where the government must keep aggregate demand “strong”. It does that by borrowing money from the private sector, that is increase budget deficits and public debt, and then spending that money on government programmes, thus trickling it down to the spending masses. If anything, this government has achieved a virtuous circle of raising aggregate demand while reducing the budget deficit and public debt.
Another fib from Vassallo was that Prime Minister Joseph Muscat had promised a “Socialist” heaven on earth. The word “socialist” is not used anywhere in the manifesto!
I acknowledge that governance structures lack sufficient strength, that the country needs more separation of powers, that key State institutions require to be more effective in enforcing the rules, that observance of anti-money laundering legislation should be enhanced, and that corruption needs to be thoroughly kept in check. But institution-building is always the most difficult part of nation-building, and progress is being made.
No heaven on earth was promised, and we do not have it. But as to a ruthless, capitalist hell on earth, I think that Mr Vassallo’s attempt to include Malta in Dante’s Inferno is so ludicrous that only a few hot-heads will find it credible.
This is a Times of Malta print opinion piece