Yes, there is an elephant in the room. Wealth is incredibly unevenly distributed in Malta. Data released by the Central Bank of Malta shows that the richest 10% in Malta own practically 90% of Malta’s business wealth (equivalent to €11.6 billion). The overall amount of debt (including mortgages and other personal credit) of households in the bottom half of the net wealth distribution is estimated at €6.7 billion (fourth quarter of 2023), accounting for 65.6% of total household debt in Malta.
The wealthiest 10% alone, account for half of the level increase in net wealth since 2010. The bottom half of households have experienced a relative decline in net wealth and a significant increase in debt. The share of net wealth held by households in the lower half of the distribution is a mere 12% according to the central bank data.
These findings highlight a growing divergence in wealth distribution in Malta, with a larger portion of the nation’s wealth increasingly concentrated in the hands of the wealthiest citizens.
In economic terms, wealth inequality encourages rent seeking behaviour, by which investors seek to maximise their returns not by productive, possibly risky, activity but by parking their money in passive ways – buying property being a common example.
In social terms, wealth inequality intensifies the kinds of structural divides which have been outlawed through various laws. Inequality is also an issue of social justice. The Maltese want to live in a society that is fair, where hard work is rewarded, and where one’s socioeconomic position can be improved regardless of one’s background.
Wealth inequality also challenges the meritocratic values that Maltese generally support.
It is these systemic problems generated by wealth inequality which need to be the centre of political attention. There are no easy solutions to such problems. However, with the right political willpower the hurdles being faced by many can be overcome.
If the living standards of all are to be raised, Malta must implement a policy agenda focused not just on growth but also on measures for pre-distribution and redistribution. Sharing the rewards of the labour market more evenly is a requisite.
Inequality lowers an individual’s sense of trust in others: not in family or friends but in unspecified persons such as political leaders. We tend to have less trust in people who are dissimilar to us.
The political mantra that Malta enjoyed economic growth in the past years is simply not the answer to the growing wealth inequality we are all witnessing. Growth alone is not enough.
Higher rates of homeownership benefit households’ personal finances as well as reducing inequality in ownership. Tax benefits linked to long-term savings plans, especially for retirement, encourage workers to build private wealth. A private pension buffer strengthens personal finances in retirement and provides the opportunity to invest beforehand if needed.
Economic history shows that expansive and equitable ownership is achieved by the least wealthy who have not yet had the opportunity to build their own wealth. Two main assets in particular, housing and pension savings, have been crucial in this regard. Encouraging homeownership and long-term savings thus serves a dual purpose: wealth creation and economic equality.
Growing inequality is neither inevitable nor a necessary price to pay for economic growth. Policy makes a difference.
Melvyn Mangion is a business consultant.