Like most other European countries, Malta is experiencing deteriorating demographics due to the social changes that have been taking place over the past several decades. This long-term phenomenon will invariably affect economic growth prospects for the next several years.
Unlike most countries, Malta’s physical limitations present additional challenges. There are obvious limits to how much land can be dedicated to providing accommodation for imported labour without affecting residents’ quality of life and fuelling more property price inflation.
Finance Minister Clyde Caruana has argued in parliament that a shrinking Maltese workforce, low fertility and education are the local economy’s main struggles. Caruana highlighted the government’s success in raising the labour participation level to 81 per cent in 2022, when Malta ranked fifth among 27 EU countries. But he acknowledged that increasing labour participation alone will not significantly mitigate the challenges of changing demographics.
Social changes are the root cause of Malta’s falling fertility rate. The threat of a shrinking local workforce is not the result of emigration as was the case in the middle of the last century. Ironically, falling birth rates are partly due to more women joining the workforce in the last three decades to improve their living standards by boosting their family income.
The social impact of this trend has been the decline in the number of women willing to sacrifice long stretches in their careers to have children. Men have generally not risen to the challenge of sharing child-rearing and home-making responsibilities. Some will argue that this trend has also led to there being less cohesion in Maltese families, making it more difficult for children to focus on educational development.
One area where both our main political parties agree is the importance of education in boosting economic growth. There is, of course, no lack of bickering about whose fault it is that the educational achievement level of our young people remains one of the lowest in the EU. The government seems to believe that education reform can be addressed exclusively with words, arguments and academic reports. Headline-hitting educational reforms are often no more than cosmetic changes.
The threats to the country’s future economic prosperity will never be solved by playing the blame game over failed labour market or education system policies. This prevalent political instinct must be replaced by a determination to come up with long-term action plans that would hardwire our economic model with sustainable social and economic strategies stretching beyond the next electoral date.
Our policymakers must stop being complacent and challenge the reluctance to move away from the model of importing low-cost, low-skilled, third-country labour to support low-return economic activities, especially in mass tourism or the retail industry. The country also needs to prepare for the time when Malta’s tax regime no longer represents such a substantial competitive advantage in the eyes of direct foreign investors.
It is high time to take a number of initiatives: to devise more selective immigration policies; to take more measures to support families to buy or rent their homes to encourage them to have children; to encourage more selective, high-productivity economic activities, and to make it easier for older workers to remain in the workforce longer. We must also find ways to integrate more low-skilled irregular immigrants and their families into our society.
All these changes will involve high financial cost and some resistance from parts of the electorate that may not want to move out of their comfort zone. But most importantly, they will require strong political leadership with a clear vision of the country’s future.