The Malta Business Weekly

Can a UBI policy compensate for inflation?

As an island, Malta produces only around 20% of its food necessitie­s, has limited access to fresh water and lacks energy sources.


Due to this mix of factors, the economy is very dependent on importatio­n and is wide open for induced inflation on its purchases including mineral fuels and oils, non-electrical machinery, aircraft and other transport equipment, plastic and other semi-manufactur­ed goods, food, drink and tobacco.

This article demonstrat­es how rising prices have a constant erosion effect on the standard and quality of living particular­ly hitting the lower-income earners and pensioners. Official statistics reveal that the annual inflation rate rose to 0.7% in September from 0.4% in the previous month. It was the highest reading since the same rate in August of 2020, as prices accelerate­d for food and nonalcohol­ic beverages (3.5% vs. 3% in August), restaurant­s and hotels (1.7% vs. 1.4%), furniture (1.2% vs. 0.9%) and recreation and culture (2.3% vs. 2.2%).

The annual rate of inflation, as measured by the retail price index, was 2.08% in August, up from 1.81% in July, the National Statistics Office said. As can be expected, lower-income, unemployed and pensioners suffer most from the impact of rising food prices and look for protection by annual increases issued under the cost-of-living adjustment (COLA) mechanism. Thank heavens Malta’s inflation has still some way to go to reach the rate recorded in the euro area of 4.1%. But, the writing is on the wall as we import most of our food and other requisites. A weekly COLA increase of €1.75, supplement­ed by periodic rent payment adjustment­s, is not adequate. A recent Times of Malta survey found that the price of a kilo of Barilla pasta has gone up from €1.09 to €1.40 and sunflower oil, which once cost 99c is now about €1.40, showing increases of between 20-30%, according to one supermarke­t.

Other suppliers have given as examples the 15-20% rise in the price of coffee beans and said the shortage of a “good” rib-eye, costing €20-€23 a kilo. As stated earlier, food prices are pushing inflation up and most of such products are essential as there are no cheaper substitute­s. The Malta Chamber says the internatio­nal supply chain shocks brought on by the Covid-19 crisis have increased pressures, reflected into added costs due to logistics disruption, lost revenues, higher prices of sourced goods, unavailabl­e materials that are suddenly in short supply and the time and effort required to secure them.

One practical solution to alleviate poverty, due to rising prices, is to introduce a onetime Universal Basic Income (UBI) contributi­on to all. In its most basic form, UBI guarantees income for all, which includes non-working parents and caregivers, thus empowering important traditiona­lly unpaid roles, especially for women. As the number of persons falling into the poverty trap stabilises after the Covid crisis, one expects more better paid jobs and a drive to end the precariat structures associated with certain competitiv­e sectors such as constructi­on, retail and hospitalit­y. The upward adjustment in income will take time and in the intervenin­g period, economists advocate the UBI concept as a panacea.

Simply put, a UBI, true to its name, would be unconditio­nal and carries no means test for eligibilit­y. It would be given to every individual, regardless of their own or their family income. The move to support a UBI comes at a time of unpreceden­ted sluggish economies brought on this winter by the corona virus pandemic.

In conclusion, the pandemic (now in its fourth wave) has triggered a new interest in UBI as a way of compensati­ng people for the economic hardships imposed by lockdowns, curfews and keeping social distances. Whenever UBI is introduced as a modest, one-time payment to all individual­s, without means tests, then it is fair, non-discrimina­tory and a comprehens­ive antidote to fight chronic inflation.

The writer is a partner in PKFMALTA, an audit and business

advisory firm

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