How free childcare fuelled an income boom but also a poverty paradox

Free childcare has helped thousands of women move out of economic dependence while also fuelling a national poverty paradox, a Central Bank analysis has noted.

The analysis noted an explosive increase in employment among women aged 25 to 49 starting from 2014, the year childcare services became free for working parents.

That boost in employment led to Malta's median disposable income rising considerably, and at a much higher rate than the European average. But in so doing, it also shifted the poverty line upwards so aggressively that many people ended up being classified as being at risk of poverty – a relative measure that is based on national median incomes - even as their real incomes rose.

Working women

Malta’s economy has boomed over the past decade. GDP has doubled, and so too did household bank deposits. The median net wealth of society’s bottom 20 per cent also rose at a higher rate than inflation, moving from €95,000 to €159,000.

Despite those gains, Malta’s rate of people at-risk-of-poverty or being classified as severely materially and socially deprived has remained stubbornly higher than expected, in line with rates in countries doing much worse than Malta economically.

In 2024, around one in every five people was classified as being at-risk-of-poverty. Among over 65s, the rate was closer to one in every three.

The Central Bank report, issued as part of its quarterly update for the first three months of 2026, takes a closer look at this apparent paradox and its underlying drivers.

It identifies one key factor as having propelled incomes upwards: more working women.

In 2014, 67 per cent of working-age women were in employment; by 2024 that number had risen to 84.7 per cent. And while in 2014 roughly one in every four working women was employed in a part-time basis, by 2024 the part-time employment ratio was down to 14 per cent.

Those two factors – more women working higher-paying jobs – helped fuel a major boost in household income. And single parents were the biggest winners, the report notes, with median income among that group rising by a massive 72 per cent between 2012 and 2024 and the at-risk-of-poverty rate dropping by 3.8 percentage points. No other group experienced a bigger drop in poverty indicator metrics.

Discussion about the potential benefits and downsides of childcare services was reignited last week after Bishop Anton Teuma expressed disapproval for parents who “throw [children] into childcare centres”.

“If your baby is treated simply as an object, once they are two or three months old, they will be thrown into a childcare centre,” the bishop said in a recent homily. 

Childcare centres provide state-funded services for children between the ages of four months and three years. 

The Central Bank data confirms that young children are spending an increasing amount of time in childcare centres;  in 2014 more than four in every five children (81.4%) had zero hours of childcare experience, while by 2024 that percentage was down to 55.9%.

“These trends all suggest that the introduction of free childcare to working parents in 2014 resulted in a shift of caring responsibilities from parents to formal childcare institutions,” Aaron G. Grech, the Central Bank’s Economics Division chief and author of the report, noted.

So if more women are working and median incomes are rising, why are so many people still classified as being at risk of poverty?

The poverty paradox

The report answers that question by taking a closer look at the way in which the risk of poverty is measured across the EU.

The metric is based on the national median income: anyone who earns less than 60 per cent of that baseline is classified as being at risk of poverty. When the median income changes, so too does the at-risk-of-poverty line.   

In Malta’s case, that meant that the at-risk-of-poverty threshold rose from €16,138 in 2014 to €25,741 10 years later. Had the threshold risen purely with inflation, it would have increased to just €19,825.

“Hence to maintain the same living standard this household had in 2014, by 2024 the required increase in income was nearly a quarter less than the rise implied by the official  poverty threshold,” the report notes.

Grech draws a parallel with another European country to further drive this point home. Both Malta and France saw the cost of living rise at roughly the same rate over the past decade

Yet while the Maltese at-risk-of-poverty threshold rose by 51 per cent during that period, “that in France rose by a third of that rate,” the report notes.

Families made up of pensioners – many of whom rely on a single pension – and those on social benefits were especially vulnerable to this poverty paradox. And though more money became available for social benefits, “these could not match the extraordinary pace of income growth caused by the rise in the employment rate.”

The report concludes with one final observation: while the government could try to bring down the at-risk-of-poverty rate among senior citizens by boosting pensions, the problem will most likely resolve itself in the coming years.

And somewhat ironically, the solution lies in the same factor that kindled the paradox in the first place: more working women.

The rise in female employment rates that moved incomes up and edged an increasing number of senior citizens into relative poverty will start to have an opposite effect, as pensioner couples start retiring with two pensions rather than one.

Couples who retire in the next few years are half as likely to rely on a single pension as those that retired 20 years ago, the report notes. And a decade from now, “dependence on a single pension will likely halve yet again.”