Can Alex Borg’s ‘Baby Trust Fund’ bridge Malta’s wealth gap?

The Nationalist Party’s leader Alex Borg has proposed a National Trust Fund for every new child born.

In the plan, each child born in Malta would receive €5,000 in a trust fund that would be accessible once they turn 20, to cover living expenses while studying abroad, make a down payment on a local property or use the money as seed funding for a business.

The money wouldn’t be subjected to tax, protected and prescribed to the child’s identity (thereby protecting it in case of a garnishee order against their parents), and in the case of health exceptions, the fund would be open to access earlier. 

This idea, proposed in reaction to Malta’s 2026 Budget, is not a new idea. Indeed, Universal Basic Capital has been floated, tried, tested and even shot down beyond our shores. 

The logic behind Mr Borg’s proposal, which has already been tested in countries like South Korea, Singapore and, closer to home, the United Kingdom, is that the government shouldn’t simply incentivise people to have more children but invest in their long-term future. 

The idea of universal grant of basic capital (UBC) is to address wealth inequality, enabling young people to acquire capital or wealth and live adult lives that are healthier and more prosperous.

Every young person becoming a legal adult does so with endowments of capital of different kinds. Each person will have human capital – varying physical and intellectual abilities and skills, acquired partly through their genes and partly through their upbringing and education. 

However, much fewer will have access to capital in the form of financial and property wealth, either directly through gifts or inheritance, or indirectly via the bank of their parents. 

With human capital, most governments try to ensure that everyone has the opportunity to acquire the skills and knowledge needed to enhance their stock through public education, education grants, and so on. But government policy rarely aims at financial and property capital, even is the inequality here is astronomical. 

UBC in a nutshell 

The idea behind a universal grant of basic capital (UBC) is simple. The Government makes a one-off grant to every citizen. The grant is made at birth, at the age of majority, or at some later point in their young adult lives. 

The UBC could be the same for all, or a minimum amount plus a top-up for citizens who are on low incomes, have low wealth holdings or who are otherwise disadvantaged. It is financed either from general tax revenues or by a wealth tax, such as a tax on inheritances or on wealth-holdings.

UBC is a relatively old idea, originating with American founding father Thomas Paine, who proposed that everyone reaching the age of 21 should receive £15 out of a national fund financed from a tax on inheritances. 

British Professor Sir Julian Le Grand introduced it into modern policy discourse in the year 2000, proposing, in a variety of publications in the 1990s, that a grant of £10,000 should be awarded to every citizen on attaining the age of majority, again funded by inheritance taxation.

Another version of UBC was put forward in the year 2000 by Gavin Kelly, of the Institute of Public Policy Research (IPPR), a progressive policy think tank. Titled a ‘baby bond’, this was a grant awarded to every citizen at birth that would be invested in a savings account or in some other savings vehicle, the accumulated funds from which could be used by on attaining the age of 18, the legal age in the UK. This version of the UBC idea formed the basis of the Child Trust Fund, a policy that was actually introduced in the United Kingdom in 2003. However, it fell a victim to the financial crisis and was abolished in 2011.

The benefits of UBC

While it is hard to measure the exact consequences of the UBC, the ownership of financial assets increases both individuals’ sense of independence and their capacity for agency, and is probably beneficial psychologically and materially.

In short, instead of just giving parents one-off grants for having babies in Malta, it can act as a springboard for young people, enabling them to acquire capital or wealth and thereby live adult lives that are healthier and more prosperous.

The UK’s Child Trust Fund was dismantled without mass outcry in the UK in 2011. The losers were and are anyone born after January 1st 2011, who no longer have a CTF account to access when they were 18. A way to counter this apathy could be a Citizen Day, as proposed by Sir Le Grand. 

If the grant was to be awarded at 18 for example, coinciding with the age at which people can vote, and the age they become eligible for jury service in Malta, it could be presented as part of a ‘Citizen’s Day,’ when a young person becomes a fully-fledged adult citizen and is endowed with both the rights and responsibilities that come from being a member of the community.

It could be symbol of coming-of-age and a powerful instrument for the young to revitalise the economy and to rejuvenate the wider society.

In Malta, the wealth gap is particularly pronounced. According to the latest data from the Central Bank of Malta, the richest 10 per cent own practically 90 per cent of Malta’s business wealth (equivalent to €11.6 billion). On the other hand, 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 per cent of total household debt in Malta.

The wealthiest 10 per cent 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 per cent according to the central bank data.

This Baby Trust Fund could be a significant start in producing wealth for young people, as an addition to other social incentives. For now, we must wait and see if this proposal can transcend Malta’s bipartisan rifts.