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.

gmm@pkfmalta.com

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

advisory firm