A budget not for the middle class? | Daniel Attard

This strategy is a primary driver behind the ongoing progress of Malta’s economy, even as larger economies, like Germany’s, experience setbacks

On the morning following the budget, the Opposition swiftly reverted to their usual post-budget narrative, claiming yet again a disregard for the middle class. However, the essence of what constitutes the middle class, according to their perspective, is becoming increasingly nebulous. This is particularly evident as Budget 2024 incorporates measures that affect a broad swath of individuals on the island.

The assertion that Malta and Gozo’s middle class remains unaffected by the assistance on fuel – given the prices in Malta are a third below the EU average – seems quite implausible. Similarly, it's hard to believe that there are middle class families not reaping the benefits from the comparably low energy prices in Malta, which are about half the EU average. During his address, the finance minister provided conservative estimates demonstrating that a two-earner household with two children would save €672 on their energy bill and €468 on petrol per car driver, courtesy of these subsidies.

Moreover, it's challenging to argue that measures like the increase in children’s allowance by €250 per child won’t benefit middle class families. The same holds for the introduction of a €500 per year allowance to parents whose children pursue education beyond the obligatory age. Aren't most middle class families likely to benefit from this measure?

Additionally, families will see a €50 per child increase in their in-work benefit. While it may be contended that this benefit targets low-income earners, this might have been the case initially, but the scope has since broadened significantly. Now, a single parent or a couple with one earner, with a salary of up to €35,000, is eligible for this benefit. When both parents are employed, they also qualify if their combined earnings are up to €50,000. Given the average wage is €22,000, these thresholds encompass a large portion of the middle class.

To address the elephant in the room: the supplementary mechanism against inflation, also known as the additional COLA. Initially aimed at low-income households, the eligibility for this benefit has expanded to include nearly half the families in Malta. A family with two children earning €38,000, a couple with one child, or a single parent with two children having an income of €32,500, all now qualify. Once more, these households are not low-income, but rather reside within the middle deciles of the income distribution.

Let’s delve into three practical examples:

A two-earner household with an income of €38,000 and two school-age children will see their in-work benefit rise from €460 to €560, and children’s allowance increase from €900 to €1,400. Additionally, they will receive an inflation benefit of €360. From just these three budget measures, this middle-class family will gain €960.

Consider another two-earner household, including a full-timer earning a wage that is one and a half times the average salary, and a part-timer earning half the average wage, with three children. This household is eligible for an in-work benefit of €600, rising to €750 next year, and a children’s allowance of €1,350, increasing to €2,100 next year. They also qualify for an additional inflation mechanism payment of €450, leading to a net gain from the budget of €1,350.

Consider a family with one earner on a salary of €45,000 and two young adults still living at home. While ineligible for the in-work benefit or the children’s allowance, this household will receive an additional inflation payment of €360.

So, were there any middle-class groups left untouched by the budget? Individuals living alone or couples without children might not receive child-related benefits, yet they still benefit from energy and fuel assistance. First-time buyers utilising a mortgage gain from the first-time buyer scheme and a €1,000 annual grant. If their purchase was in a UCA, they receive €15,000, or €40,000 if the property is in Gozo. Alternatively, if they choose to rent and their income doesn’t exceed €33,000, their rent subsidy will increase from €5,000 to €6,000.

While this budget heralds numerous improvements in social security benefits for low-income individuals, alongside a significant rise in the minimum wage, it also offers substantial advantages to those in the middle income brackets, especially those supporting children in full-time, post-secondary education. Instead of burdening the middle class with higher energy and fuel costs, the government is augmenting their purchasing power. This strategy is a primary driver behind the ongoing progress of Malta’s economy, even as larger economies, like Germany’s, experience setbacks.