Insight

A new era of social investing

Malta’s economic prosperity to be invested more socially with major investments in a social housing, support for first time buyers, and incentives to expand the countries workforce. MaltaProfile discusses work, pensions, benefits and social housing with Minister for Family and Social Solidarity, Dr Michael Farrugia.


INTERVIEW HIGHLIGHTS

  • Government discussing new system to assist couples fund deposits on property
  • European banks injecting €50 million for sustainable social housing projects in 16 localities
  • First companies marketing third pillar pension programmes, Government incentivising the take-up

 

The eradication of poverty and addressing those citizens who are at risk of poverty have been at the centre of your work. What has been achieved and what are your targets in this process?

Work and education are the two main elements to tackle poverty. In our first full year in office, we have managed to clamp down the cohort of individuals who are under the poverty line and those at the risk of poverty from 24% to 22%. However, the reality is not that simple and clear cut as there are categories of persons who are materially deprived, that are lacking three out of the seven everyday essentials and those who are severely materially deprived who cannot afford four out of the seven basic daily consumables. Furthermore, we have an emerging reality of individuals who in the outside world give the impression that they lead a luxurious lifestyle but who then hide their struggle with normal life inside their home. We have many an initiative for the different categories mentioned, and we are also pushing individuals to further their education including at the tertiary level.

Pensions and pension reform have been issues for more than a decade now. From the Government’s point of view, what is the way forward with regards to a balance between a public and a private pension?

We are aiming to improve pensions in order to remove our pensioners from the risk of poverty. Our goal is to attain 60% of median income for our pensioners in order for them to sustain a better quality of life.

The third pillar pension is now available in Malta, and we have seen the first companies marketing their programmes. Government is also co-operating to incentivise the take-up of such pension schemes via waving the tax deduction on the first €1,000 saved. We have also rolled out an information campaign related to financial literacy that can help citizens take informed decisions about their retirement schemes.

However, this Government remains opposed to second pillar pensions as we find it problematic for both employer and employee.

If we take the productivity side of the debate and the association between social security contributions and pensions, a new trend has emerged. An influx of legal migrant workers especially from inside the EU (be it Italian, Spanish and Greek citizens) is positively affecting our population growth rate, balancing out Malta’s decreasing birth rate. Malta’s birth rate is at 1.4 while the European average is 2.1 children per couple. In fact, we calculate that Malta’s population is now expected to increase by another 50,000 in the years to come.

 

"Legal migrant workers positively affecting population growth rate, balancing out Malta’s decreasing birth rate"

 

This government has adopted a clear policy that incentivises work as opposed to benefits also by extending in-work benefits, are you reaping results?

Our efforts on incentivising work as the long-term alternative to the benefit trap has reaped results as the take-up of benefits has decreased by around 30% in the single-parent and unemployment category. This tallied up with the figures of entry into work.

Apart from the direct benefits, however, there are the benefits in kind that many a time are not valued or at least not many put a price tag on them. When this Government provided free childcare for all, it was as if we were putting some €6,000 in each families’ pocket. Same applies to free education and free health services. This goes further to show that it is not the benefit which is the issue per se but the suitability of it and the return on our investment as a state.

Meanwhile, we have also incentivised a longer working life that gives the opportunity for workers approaching retirement age, which is currently 62, to continue working until they are 65. If this is the case, such employees can end up receiving a pension that can be 23.5% higher. I also foresee that we will soon have a national discussion on establishing a pension age concept that replaces the current retirement age scenario. While this might bring opposing reactions from employees, unions and employers, it can have the potential to further promote longer employment life that helps address human resource scarcity in certain professions.

I am also happy to say that our economy is creating enough job opportunities for individuals that we manage to shift from benefits to employment, be it skilled or unskilled jobs. We are also catering for individuals on a one-on-one basis to see that they move into the work routine. Through our social workers, we treat these cases as a work in progress and we follow them in their new phase.

 

STILL UP FOR IT: Malta incentivises a longer working life by encouraging those approaching the current retirement of 62 to continue working. The country is also set to have a debate on decoupling pension and retirement age.

 

Housing remains one of any government's major struggles. What type of strategy is your government adopting towards addressing the ever increasing demand?

An important project is on the cards which shall see a financing of €50 million from the European Investment Bank and the Council of Europe Bank to slash the current waiting list for those who deserve social housing. It entails environmentally friendly buildings in 16 different localities. This will also address the issue of having Government at the mercy of the rent price imposed by the private operators, which are renting housing blocks to the state. This investment will help in providing a more long-term solution.

The demand for rental units is ever increasing, while prices are shooting up. Would Government consider any action in order to keep this sector in check especially in regard to the affordability of rent?

It is a case of demand and supply, and we happen to be victims of our own success with foreign workers who can afford higher rents. We are also looking at regularising several buildings that need minor changes in order to come out on the rental market, and thus we would be addressing supply. However it is clear that the problem is of a wider nature, and while it was crucial that Government decreased taxes on renting from 35% to 15%, the problem still hasn’t been solved. As you very well know the Prime Minister has acknowledged this problem as a serious issue and has been very clear that while being in favour of a free market, the state must intervene if operators do not find a way to control this unsustainable spike in prices. There is also the issue of Maltese couples renting rather than buying as they cannot come up with the deposit. We are seeing how we can help with that but we need to be cautious in order not to destabilise the market.

 

"We are seeking ways by which to help young couples with their initial deposit on property"

 

What do you aim to accomplish through Malta’s EU presidency in relation to your sector?

There will be an Informal council meeting which shall concentrate on making work pay. We are registering a lot of interest on this particular topic, and Malta’s policy will be portrayed as a case of good practice that can inspire other countries. A second element is the so-called Accessibility Act which tackles products and services for persons with disabilities. While this particular dossier is not yet at the stage of conclusion, we are very confident that we can make considerable progress in this particular policy process.

What plans does your Ministry have on deliverables for the remainder of the legislature?

My ambition for this legislature is to help all families with children in Malta to live above the standard set by Caritas as the minimum for a decent life. This is my target, and with the help of all our Government Ministries and entities, I will strive to bring about such change in the everyday life of these families.

 

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