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Network News • 14-09-2021

Inequality, poverty and redemption

Author: George Mangion - Senior Partner PKF Malta
Published on The Malta Independent: 14th September 2021

September is the month when schools open and children welcome a return to refurbished premises after a long summer absence exacerbated by the Covid partial closure.

There is an air of despondency when we recall how in the past two years we faced many sacrifices in an effort to contain the spread of the virus. All the while, we have faced lockdowns and curfews which compounded the cost of keeping employment alive for thousands of workers who saw their jobs in hotels, restaurants and retail business threatened by a severe drop in tourism.

A wave of change ushered in an exodus of top ministerial bigwigs in Castille. Needless to remind readers how as early as November 2019, we witnessed the disgraced resignation of three ministers and a chief of staff. A milestone was the resignation of Joseph Muscat as prime minister on 12 January 2020.

This means, it is time for us to start thinking about ways by which we can properly interpret our political and social barometers to assess how we can rebuild sobriety, fairness and probity in Malta. This bevy of top brass resignations is not the proverbial swallow in a clear summer sky but points to a collective tarnishing of our image.

Simply to mention Moody's rating that downgraded us to a negative (from stable) and the recent grey-listing by FATF. These are facts which some pundits (due to a hidden agenda) prefer to ignore at their peril. They treat the political upheaval as the elephant in the room ignoring stark facts that GDP growth this year dropped by around 0.5%, from a 7% increase in 2018 (previously, it was artificially boosted by domestic demand).

With the unforeseen Corona virus hitting international business, Malta did not escape unscathed. Our GDP growth is projected to improve at a slower rate needed to repay the €3bn hole which was necessary to fight the virus.

This resulted in a drop in exports due to global uncertainty and rising inflation particularly freight charges. But, it is not all doom and gloom as Silvio Schembri, the campaigner and famous image-builder of "Blockchain Malta", announced a string of new capital projects to expand exports. Naturally credit is due to the policy for factory extensions by Indis (previously Malta Industrial Parks).

This is welcome news as the minister announces it will create a demand for more trained workers. A Catch 22 situation follows considering the current shortage of trained workers. These are becoming scarcer on the Jobsplus register.

Party apologists brush aside the negative consequences of the FATF tarnishing and expect that as a result of serious reforms the unsavoury appendage will soon be dropped. FATF's main issues involve lax controls by regulators on AML/CFT issues, leniency on tax dodgers of preferential lineage and dubious accuracy of UBO registers kept by MBR.

As a consequence, banks are expected to tighten their governance mechanism and invest in sophisticated systems to improve their understanding of risks and supervising when on-boarding new businesses. Moving on, we hope that the autumn budget will propose adequate compensation for pensioners and those living on low incomes. In the past, many lamented that the cost of living award of €35 per family was inadequate.

Caritas continues to push government to consider announcing a living wage index as is the case in the UK. It is a paradox, when we hear of thousands living on the poverty line when at the same time high street supermarkets are brimming with people in a frenzy shopping spree, burning their credit cards to the limit. Is there a two-tier economy running in parallel?

Party apologists wax lyrical, nostalgically reminding us how during the height of Joseph Muscat's short-term as prime minister, he managed a brimming economy with full employment and a high feel-good factor. Nobody doubted they were the "best times ever" pointing to restaurants and pubs brimming with diners while champagne flowed in corporate parties. In reality, the disparity between the fat cats (sporting Ferraris, sailing holidays to nearby islands or others sipping aged single malts on expensive yachts) and the working classes is getting wider. Ideally, this imbalance is reduced and attempts are made to reach a wider distribution of wealth.

This ambivalence in inequality must not hoodwink us or lure us to wave a flag of complacency which yielded to a feeling of despondency triggered with the arrival of the deadly Covid virus. As they say, Rome was not built in a day and it is well documented that the elusive trickle-down mechanism takes time to work its miracle cure.

A chronic malady is the need to combat rising rents which can be a social curse particularly for tenants earning low incomes or having large families to sustain. As always, pensioners come in with a load of demands. There is a general feeling that the statutory two-thirds capped pension mechanism, unless supplemented by external income, is not sufficient to help people from sliding into the poverty trap.

To analyse this issue, four years ago PKF designed a number of "one-to-one" questionnaires and ran a confidential survey among residents in old people's homes housed in three government-run centres. Not surprisingly, when one breaks up this data by age group or household type, one finds that the above-mentioned "feel good factor" has not benefited everyone.

Sadly, the inadequacy of the current minimum wage and Cola adjustments affects different types of distressed households, including families with children with only one parent in low-paid employment, and elderly couples with insufficient income to cope with daily living expenses. Perhaps the discussion in MCESD, ahead of the budget announcement, will influence the purse strings of the finance minister in time to announce a serious reform in the mechanism of Cola and a reduction in VAT.

The writer is a senior partner of an audit and consultancy firm and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island.


Author: George Mangion - Senior Partner PKF Malta
Published on The Malta Independent: 14th September 2021
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