The 2023 budget strengthens the welfare state with 60% of the measures listed in the speech could be considered "socialist". However, this form of social protection will have challenges in the future such as ageing population which will require a rethink of the system.
In the post-Muscat era, the Labour Party is actively trying to re-associate itself with its socialist roots without losing the business-friendly voter base it has gained over the last 15 years. Under the Muscat leadership, the Labour party was often accused of venturing too far to the right of the political spectrum, as it successfully played jump rope with the median voter theorem.
The Abela administration sought for a shift in this narrative. However, it was imperative for economic and electoral purposes not to dissuade the more capitalist-friendly elements of the population. The pandemic and current inflation crisis have provided the perfect setting for such a delicate balancing act.
With Clyde Caruana as Finance Minister, the government has adopted a number of measures to soften the blow of the crises on families. Whilst socialist at heart, these measures have also translated into a quasi-stable scenario required by businesses to keep on operating in times of economic turmoil. The pandemic saw the roll-out of the wage supplement, which could be seen as a socialist measure to keep employment stable and worker earnings safe, but it was also a market-oriented exercise to keep businesses afloat and ready to recover once the effects of the pandemic slowed down. Fast forward to today, and according to the budget estimates, the government is planning to spend around €608 million in subsidies to keep electricity and fuel prices stable. Again, a big measure that goes down well with families and the business community alike.
In a patriotic introduction to the budget speech, the Minister for Finance and Employment stressed on the words “Qalbna kienet, għadha u tibqa’ waħda soċjalista.” (Our hearts were, still are and will remain socialist). Upon analysing the budget in its entirety, the number of measures which can be described as socialist significantly outweighs what can be considered as pro-business. Around 60% of the measures listed in the speech would land on the left-hand side of the political spectrum. This computation forgoes the actual amounts that would be spent on the measures listed, but at a glance, the budget would be more “socialist” if we had to go through that exercise.
The budget has strengthened the welfare state. At its most basic, the welfare state provides some form of social security and poverty relief. However, the concept of the welfare state has seen a shift because of the pandemic, not just in Malta but across the western world. The initial principle behind the welfare state was means-testing (welfare only for the poorest), social insurance (only for those who paid in) and conditionality (only for those who do something). Western states now seem to have kept these elements to the core but are now also seeking to keep the standard of living stable irrespective of which social class one is associated with or whether you are an employer or employee.
The Labour Party, more often than not, takes credit for the creation of the welfare state and the benefits it brings for those who form part of the most vulnerable segments of society. However, historically, the left’s greatest pride will be facing great challenges in the future: from ageing populations, immigration and the more varied nature of work, none of which Mintoff and Boffa had to worry about.
In a scenario where economic growth becomes stagnant for a number of years, if the welfare state continues to become more robust, it may become unsustainable. For now, Minister Caruana does not see it to be the case. As countries become richer, they tend to spend higher shares of national income on public services and benefits. Spending on “social protection”, such as pensions, unemployment insurance and assistance for the hard-up, has risen from an average of about 5% of GDP in rich countries in 1960 to 20% today. If you include spending on health and education, those numbers roughly double.
In a recent twist of perspectives, to a certain extent, even capitalists today seem to long for the previously despised state aid as they seek government assistance to remain competitive, especially in times of crisis. In Malta, the bottom-up approach has proven popular amongst both businesses and families. Historically, the Nationalist party was the home for the free-market sympathisers. Traces of this clash in philosophy were also reflected in Bernard Grech’s reply to the budget speech. The leader of the opposition criticised the government for having large deficits and at the same time claimed that the government was not spending enough to mitigate the cost of living crisis and on capital expenditure.
What we are seeing today in Malta, and to a certain extent in Europe, is a new approach to socialism, more commonly known as the centre-left. Here, the government is pushing towards using top-down and bottom-up approaches at the same time, in a bid to keep employment secure and families' income stable.