Lower income groups are not compensated enough for the increase in the cost of living. In other words, year after year, they are being driven into deeper poverty.
by Joseph Bartolo
Image: dpa/ Sebastian Willnow
A short definition of poverty might well be as simple as the inability to live a decent life. This does not in any way go in the complex definition of poverty but should suffice for the purpose of this article. Although the opinions on what qualifies as ‘decent life’ vary, having access to such necessities as food, shelter, medicine and clothing would certainly be among its features.
Social activists have long been trying to establish the quality and quantity of resources money and/or services – that constitute a decent life.
In Malta, over the last decade, Caritas has been on the forefront of social activism, making a substantial effort to define and quantify the context of decent living through the project “A Minimum Essential Budget for a Decent Living”. Although the organisation established the resources required to sustain the acceptable standard of living for vulnerable social groups such as single mothers, pensioners and low income earners, its propositions have never been taken into consideration by any government (be it Nationalist in 2012, when the results were first publicised, or Labour after the last year’s update of the figures).
In order to estimate the increase in cost of living, government statistics offices collect data. First they establish the retail price index and then calculate the inflation rate based on it. The results of these exercises are merely imprecise averages which are not indicative of the factual outcome that the inflation has on different income groups.
Here is an example: an inflation rate 1.24% (June 2017) announced by the National Statistics Office (NSO) does not differentiate between different income categories—from recipients of a basic pension/welfare benefit of about €400 a month to earners of up to €12,500 a month. The absence of nuance makes these average figures misleading: they ignore the gross disparity between different income groups.
Low income earners, for instance, are affected most by the inflation rate on the price of food. While a family with an income of higher than €30,000 would not spend on food more that 15% of its budget, for a low income family spending on food might exceed 50% of their total disposable income. The higher is the income, the less family budgets are affected by inflation. Since, at this moment, the inflation on food is among the highest (currently estimated at about 1.6%, but exceeded 10% over the past 5 years), its ripple effect on the low income earners is far more pronounced.
Another detail to consider when discussing statistics like the retail price index and the inflation rate is which services and commodities they take into account. Although the expenses of all income groups include food, clothing, transport and communication, spending on holidays and restaurants, just to name a few, is not part of low earners’ budget. This is another reason why statistics should be provided for each income group separately. Families that are struggling to put food on the table, pay the rent, and to whom even school lunches is a great expense, are not affected by the increase in prices of travelling or dining out.
For another vulnerable group, pensioners, medicine is a critical expense. In fact, the inflation on medicines is even higher than that of food. The older one becomes, the more medical care is required. Although I do not dispute the excellent medical services at our state hospitals and the generous Pharmacy of Your Choice offers, pensioners would confirm that, in most cases, these services do not cover their expenses on medicines. However, the NSO makes an assumption that, since the healthcare is provided by the state, the inflation on price of medicine does not affect pensioners and low income earners, hence it does not give medicines appropriate weighting when calculating the inflation rate.
The inflation on housing costs is another matter. NSO considers that about 80% of families are property owners and another 12% live in social housing. Plus, a small percentage of families occupy housing at no cost. This means that, out of 165,000 families, about 5% live in commercially rented properties. Minister Scicluna, unethically, states that such a low percentage does not constitute crises. I beg to differ: If more than 8,000 families are battling the savagely of rented market, with some of them having to spend all of their income on rent, then it certainly is crisis for them. Inflation in the housing rented market is sky-rocketing, yet this parameter is not taken into account when calculating the formal figures of inflation.
Hence, I argue that the retail price index and the inflation figures do not capture the nuances such as the effect the inflation has on different income groups. The numbers on how inflation affects low income categories, obtained by Allienza Kontra l-Faqar last year, reveal that pensioners, welfare benefit recipients, minimum wage earners, and families with an monthly income of less €1,200 experience a higher inflation rate than stated by the NSO. While the NSO estimated the inflation rate at less than of 1% annually, it goes up to 5% for low income earners.
Why is establishing a more nuanced retail price index and inflation rate so important? Wages, pensions and welfare benefits are adjusted annually by COLA mechanism. Since inflation affects low income earners disproportionately more than the other income groups, it is fair to expect the COLA adjustment to take this fact into account. Yet, the adjustments are based on average figures and, hence, are rather futile.
A consequence of this policy is that, consistently, lower income groups are not compensated enough for the increase in the cost of living. In other words, year after year, they are being driven into deeper poverty.
This is no sweet music to the devotees of our neoliberal economy, which thrives on low wages and proclaims their undisputed trickle down benefit system. It has been established that trickle-down economic models achieve the opposite results—the wealth trickles up. What neoliberal economic policies have succeeded in is creating an unregulated market which is not only detrimental to the low and average income earners, but to the economy at large. The neoliberal God—the free market—only makes the rich richer and the poor poorer.
This situation is not unique to Malta; indeed, it is global. Poverty is on the increase even in economically prosperous countries. Uneven distribution of wealth means an ever-increasing social and cultural disparity between the rich and the poor. It is pushing people into unnecessary hardship. The tools of a welfare state often do not mitigate the struggle to reduce and eliminate poverty. Progressive taxation together with decent wages, and welfare benefits which compensate for the increasing cost of living, are still the basic mechanism to prevent poverty from growing.
Joseph Bartolo is an activist at Alleanza kontra l-Faqar.
Having made all due considerations I hope there is wider discussion with employers and financial services executives on this topic.
The government appears focusing on a political agenda that is too detached from anything related to political agendas, because they just do what they want.