ADDRESS BY THE HON. LAWRENCE GONZI, DEPUTY PRIME MINISTER AND MINISTER FOR SOCIAL POLICY, DURING THE MALTA FEDERATION OF INDUSTRY ANNUAL CONFERENCE ON "THE WELFARE GAP ? ACTION NOW"

 Mr. President:

Ladies and Gentlemen:

 In two months time, we will hit the half way mark of my government's five year term. We are therefore at a point in time where we can and should take stock of what has been achieved so far and where we stand with respect to the ongoing challenges that face our country.

This is therefore the right time for us to ask the question which the FOI has put on the main agenda of this conference – is the Maltese Economy delivering? I will refrain from going into detail on this overall topic since this session has a different focus. Allow me, however, to state that the results achieved so far provide us with a positive outlook which deserves emphasis. Our gainfully occupied are up, our unemployment is down. Our GDP continues to grow. Our national deficit is down. These targets, which seemed so difficult to achieve three to four years ago, are now within our reach.

Complacency is, however, out of place. Whilst retaining and indeed strengthening further the present rhythm of economic development, we still face some important challenges that cannot and should not be underestimated. At the risk of oversimplifying a highly complex equation, I will state that, in my opinion, the two most important tasks which we have at hand are : firstly the need to regenerate our human resources, empowering them to be able to respond to modern realities; secondly the need to revisit our welfare systems in a manner which guarantees two important and fundamental criteria, namely their effectiveness and their sustainability.

These two tasks (or shall I say challenges) might, at first sight, appear to be totally unrelated. Allow me, however, to state at the very outset that the two challenges are intimately related to each other. They are both important ingredients of any solution we might wish to adopt in seeking to resolve the welfare gap issue.

This brings me to the topic of this session. "The welfare gap – action now" is a statement that does two things. It acknowledges the crucial challenge that we face today and it urges us to take action immediately.

I propose to outline to you three points. The first relates to the need to understand the extent of the issue that we face. The second relates to the fundamental principles which cannot and should not be divorced from the strategy that is required to lead us to a resolution of the task at hand. Finally, my conclusion will briefly outline to you the measures that have been taken by my government over the past two years and which are specifically targeted to reduce this gap in as smooth a manner as possible.

My first point focuses on the need to understand the extent of the issue that we face. According to the financial estimates approved by parliament for the current financial year (ie 2001), our social security account envisages an expenditure of Lm 233 Million as against projected revenue of Lm 182 Million. This leaves us with a welfare gap of Lm 51 Million.

Again, according to the Economic Survey published in November of last year and covering the period January to September 2000, the Department for Social Security together with the payments of Social Security Benefits accounted for 41.2% of total recurrent expenditure. This by far represents the single largest share in Government expenditure. The Survey explains that during the period under review, expenditure by the Department of Social Security increased by Lm 4.3 million which was primarily the result of increases in state contributions in terms of the Social Security Act. Similarly, Government welfare payments increased by Lm 3.6 million which was largely attributable to an increase in the number of social security beneficiaries and higher average compensation levels.

The figures that I have just quoted represent the traditional way of describing or evaluating in money terms the gap between revenue and expenditure on the welfare account. We all know, however, that the total government outlay on welfare in Malta is a lot more than that.

A more realistic balance sheet of our national welfare account needs to factor in social provisions in respect of social housing, state education, measures to combat unemployment and activate dormant human resources as well as a quantification of general social welfare services to assist persons who have encountered difficulties along their life path.

There is another aspect which needs to be emphasised if we are to have an open and clear debate on how to address the welfare gap issue. Very often, the debate on this topic tends to revolve around the pensions issue. Admittedly, this is a central and crucial theme – I could add that this is so in all countries around the world. It is, however, a topic which is not exclusively linked to the welfare gap challenge. Indeed, retirement pensions in Malta account for 33% of the general welfare expenditure in our Social Security account.

This is certainly a major chunk, but the dimensions of that challenge are dictated by other factors such as the projected ageing of our population in line with changing social values and the resultant drop in birth rates together with the impressive quality leap in medical services which are prolonging life expectancy levels.

The point I am making can therefore be summarised as follows : When discussing the welfare gap challenge we need to encompass all the gamut of services independently of whether they are balanced by some form of contributory payment made by taxpayers and/or by beneficiaries. Otherwise, we may risk underestimating the real extent of the task we have in hand.

The second point I would like to present to you relates to the fundamental principles which should underly our strategy when addressing this issue.

Social Welfare benefits are, by their very nature, measures to mitigate inequalities, to maintain social cohesion through solidarity between different socio-economic strata. They are social allocations based on a contract defining the relationship between individual and collective responsibility. Such allocations are more often than not targeted on the basis of need, directed at those in the most dire circumstances.

There is, therefore, a human and social responsibility to support such affirmative action. Social welfare should be considered above all as a set of mechanisms ensuring collective solidarity and based on redistribution of incomes.

More importantly, we should be very clear in our minds that welfare support systems, if properly designed and implemented, should translate into crucial factors that sustain economic advancement. Of course we must justify all our social expenditure, but the measuring tool which we should use in order to assess whether an expenditure is justified or not, cannot be limited to an book keeping exercise of inputs versus outputs, credits vs debits.

Because the bottom line is not financial – it is human. Our measuring tools should therefore focus on the financial aspects but within a human dimension.

My point here is simple. Anybody who suggests that we can resolve the welfare gap by simply reducing our social expenditure, needs to understand that this type of strategy is short sighted and will inevitably have an economic boomerang effect. If, on the other hand, we are able to devise a strategy which encourages people to develop their full potential, which makes full use of our human resources, which relieves social stress in order to release economic potential – then we would be on the right track.

Social cohesion is therefore our underlying principle.

This train of thought brings me to the third and final part of my address to you this morning. In line with the underlying principle of social cohesion, my government has embarked on a long list of initiatives which, in my opinion, target the very core of the welfare gap issue.

This list includes measures which are intended to curb abuse, introduce higher efficiency levels, improve our national economic performance and maximise on our human potential.

Allow me to briefly outline to you a few examples of initiatives that have been taken by my government over the past two years and which are specifically targeted to reduce the welfare gap in as smooth a manner as possible. These initiatives fall under three categories.

The first category deals with initiatives which aim to maximise on our human resources. We have taken and we will continue to take steps to reduce unemployment, increase vocational skills and retrain our labour force. We are aware of the fact that the registration system we have adopted in Malta for a very long number of years gives us an incomplete picture of our potential labour supply. There are people who are willing and able to work, but who refuse to register for work. We need to know exactly who these are in order to fine-tune our policies in encouraging people to join the labour force. In this context, the Labour Force survey which has been undertaken by the Central Office of statistics will give us a useful indicator and will provide us with an innovative approach in our employment strategies.

Similarly, we have taken concrete initiatives to increase the participation rate of our female population, and we intend to continue strengthening this aspect by legislating on gender equality and discrimination aspects. Similarly we will continue to provide support for all those who have faced or are facing specific social problems or who have special needs.

Allow me to add that my government's insistence to introduce adequate health and safety measures must also be seen within the context of a wider strategy to address the welfare gap issue. Reducing and possibly eliminating accidents at work, protecting our human resources and instilling a culture of high standard work ethics, is central to the sustained economic development of our island. But is also a very concrete step in addressing one of our major causes for the increase in medical and health expenses as well as for the increase in invalidity pensions and other benefits.

All of these initiatives have the beneficial effect of (a) maximising our human resource pool and (b) reducing the number of economically inactive people and therefore reducing the number of people who will otherwise be dependent on welfare systems for their daily living.

The second category of initiatives focuses on the need to eliminate abuse of our welfare systems and to introduce better efficiencies at all levels. I suppose you are all aware of the determined effort that has been undertaken over the past twelve months in order to eradicate abuse of the system, both on the social security level as well as on the tax level. This was the direct result of close collaboration between my Ministry and the Ministry of Finance when, earlier in 1999, we both re-assessed the whole social security network of benefits. As a result of that exercise, we concluded that the social security network is well regulated. But we also concluded that all those benefits which are means tested, necessitated that we send a loud and clear message to all beneficiaries – namely that we have the responsibility to make sure that maximum benefits are paid to those who are in real need.

The third category of initiatives have a different flavour. They are intended to project the message that addressing the welfare gap issue and, in the process, guaranteeing the sustainability of our social safety net, is a responsibility which must be shouldered by everyone. Government is prepared to take the lead, but in making this statement, we reiterate our strong belief in social solidarity and collective responsibility. The challenges that Malta faces, are not just the challenges of the government. They are the challenges of the whole nation.

This is precisely why earlier in 1999 government set up a high powered National Commission with the mammoth task of reviewing our social welfare systems including identifying those medium to long term solutions which are necessary for us to sustain and, if possible, improve the level of pensions and social security benefits.

It is also the reason why we have taken the decision to widen the MCED's role for it to encompass the social aspects of our development as a country.

Finally, it is the reason why we continue to encourage and support civil society in Malta to participate and to contribute towards the generation of economic and social wealth.

Allow me to conclude by stating that, in a world harried by economic interdependence, the risks of turmoil in the financial markets and the demands of intense competition, there is every justification for sheltering social welfare systems from the vicissitudes of the market and the risk of financial unsustainability. Perhaps the liberalization of trade and the tendency towards globalisation are having over-all positive effects. But if there are winners, there are also losers. International competition tends to aggravate inequalities. It discards people – workers who are victims of closures or reorganisations of enterprises, workers with low skill levels or whose skills have become useless or obsolete and so on. All this makes social welfare transfers more necessary; for it is a means whereby the strong can come to the assistance of the weak and where the weak can seize the opportunity to regain self-confidence and self-fulfilment.

Yes we have a duty to address the welfare gap. And yes we are determined to do so. But not by substituting it with a deficit in those human values which have underpinned the constant progress of which we are all eye witnesses.

Thank you