Living in Malta (the cost of…) | Jerome Caruana Cilia

The Government must not hold back from creating new economic sectors in our economy. This is critical to our surviving this round of crises

We have heard a lot and will still hear more about the mechanism for compensation for the increase in the cost of living, or, as it is called, COLA (Cost of Living Adjustment). This term immediately raises several questions amongst which are – is COLA a just mechanism as compensation for the increase in the cost of living? Can we have a decent wage with COLA? Even after receiving COLA, can we lead a better life when essential products are constantly increasing in price? In essence does today’s COLA compensate for the cost-of-living increase as it is supposed to?

The PN is clear and precise; it is essential to talk about the COLA mechanism so that workers and professionals can live better financially, but as importantly, we need to drive the need for investment in new economic sectors which create growth. In this way, not only will we be creating higher quality jobs, but value-added ones which pay better. In turn, many workers will progress their careers and social mobility in our country will increase.

We have seen this happen in the past, when new and exciting sectors were created: the financial services sector, gaming, maritime, aviation and pharmaceutical sectors, among others. All these sectors still employ thousands of well salaried and respected workers and professionals. There was a process, which lasted years, to introduce each sector, but there was a clear economic vision. This process led to a strong, diversified, and resilient economy. This economic vision, together with the hard work of the labour force and the courage and wisdom of entrepreneurs resulted in our country being able to grow as a nation and weather the several crises we faced. There is still much more to be done in this regard. The Government must not hold back from creating new economic sectors in our economy. This is critical to our surviving this round of crises.

Every year, when budget day come around, there is always the same question: how much is COLA going to be? If we look, at how much COLA amounted to from 2000 till today, we find that the highest COLA per week was €5.82 in 2010, with the lowest one being €0.58 per week in 2015.

As expected, this year the discussion has become sharper. At a time when there is a record rate of inflation, the squeeze is being felt by most individuals, whatever their role and responsibilities and industries, not matter the line of business. According to the data released by the National Statistics Office (NSO), the rate of inflation in Malta in August of this year reached 7%.

What we must note is the fact that prices which increased the most were those of essential food products. This higher cost of living affects everybody but particularly more those who are vulnerable and have less spending power.

During the Government pre-budget document presentation, the Minister of Finance confirmed that the compensation for the increase in the cost of living is going to be between €9 and €10. These figures have been doing the rounds for several weeks.

Everyone has an opinion. There are those who argue that this amount is not high enough and does not compensate. On the other hand, employers insist that they cannot afford to pay employees these increases. It also seems that there is a clear and present fear that increases in operating costs will be passed on to and carried by consumers, thereby causing inflation to grow further.

A survey conducted by the Malta Employers Association (MEA) clearly shows that about 72% of businesses intend to pass on part or all the increases related to operations, to the consumers. When asked, “How are you going to handle the increases in operating costs?”, 50% of the businesses replied that they are going to pass on part of these costs to their clients. 22% of the companies replied that they are going to pass on all the increases in operating costs to their clients and consumers. Only 28% of companies taking part in the study said that they themselves would absorb all the increases related to operations.

It is worth looking at some of the challenges that employers are going to face in these circumstances. According to a study conducted by the Malta Chamber of SMEs earlier this year, employers are facing many challenges, mainly an increase in operating costs: cost of overheads, imports cost and cost of supplies, inflation in general and wage inflation among others.

According to the latest pre-budget survey of the Malta Chamber of SMEs, the greatest challenge faced by businesses (a little less than 45%) is related to the shortage of workers on the market or of workers who do not have the required skills - labour shortage and low skills. The latter issue can lead to a different challenge related to talent retention in certain sectors, which generally leads to an increase in salary in these same sectors creating further pressure on employers apart from the annual COLA increase.

This increase, coupled with other expenses, could easily result in the subsequent decrease in competitivity of companies to the detriment not only of the Maltese entrepreneurs but of the country itself. This decrease in competitivity has already been flagged on many an occasion as it also places our potential to attract Foreign Direct Investment (FDI) which is one of our economy’s major bloodlines.

These circumstances have caused many to ask whether the mechanism of COLA, which was agreed to about 32 years ago, is still valid and if the process still makes sense today.

I want to make it clear that I have insisted that the existing mechanism should be used in this budget and there should not be any ad-hoc changes a few weeks before the budget presentation. But it is necessary, that in a serious and mature way we should be forward looking to make sure that any compensation mechanism to combat the increase in the cost of living is both just and correct in today’s circumstances.

In these exceptional circumstances, the Forum of Maltese Unions, the General Workers Union, the Confederation of Maltese Trade Unions and the UHM Voice of the Workers have also issued a joint statement asking the Government to discuss a new cost-of-living increase mechanism. In a united front they are presenting a proposal through which the COLA mechanism can target situations like these, ensuring justice for workers as well as employers. These representatives of thousands of workers insist that they are presenting this proposal with responsibility towards their members and also to safeguard the sustainability of jobs.

Therefore, the PN is recommending and also supporting all parties within the Malta Council for Economic and Social Development (MCESD), in the following:

The existing COLA mechanism should be used for the budget of 2023 and there should be no ad hoc changes without the consent of all the members of the MCESD.

In today’s context, the Government should help employers through, among other things, sustainable fiscal incentives to ensure that the private sector remains competitive, thereby continuing to contribute to the creation of financial well-being.

The Government should enter into serious dialogue with all parties concerned and not adopt a top-down approach, to ensure stable industrial relations and a better quality of life.

New and wider criteria about what is considered as a period of extraordinary circumstances should be established. During this period, in agreement with all the members of the MCESD, a new mechanism for extraordinary circumstances will be implemented.

After receiving feedback from the Social Partners, we believe that the Low Wage Commission, which is expected to make formal recommendations next year, should immediately commence serious and constant dialogue with all parties.

To induce a mature, genuine conversation so that through dialogue, an agreement can be reached among the members of the MCESD that links certain increases in labour costs with productivity gains.

The study commissioned by the Government about the introduction of the Living Income in our country must be published immediately. At the end of 2020, it was said that the long-awaited study was at an advanced stage.

Government must draw up and implement a holistic plan in order to create new economic sectors.

Jerome Caruana Cilia is a Nationalist MP and finance spokesperson