It’s not just 'competitiveness' that needs safeguarding

This week’s clash between the General Workers’ Union and the Malta Chamber of Commerce, over the current Cost-Of-Living-Adjustment mechanism (COLA), once again illustrates just how ‘mercenary’ Malta’s corporate sectors can sometimes be.

The COLA mechanism was originally introduced by the Nationalist Administration in 1991, to ward against the effects of inflation by introducing mandatory weekly wage-increments. These increases are automatically determined by a fixed mathematical formula, which is based on the retail price index: a basket of goods, that also takes into account factors such as the inflation for the previous 12 months.

As such, it is no surprise that the COLA adjustments predicted for the next budget – after a year which witnessed sky-rocketing inflation, across the board - will be much higher than usual: possibly reaching as high as €10 by next October.

The Prime Minister has in fact only just confirmed that next year’s COLA will be “substantially” more than in previous years; and also that the same mechanism will remain in place.

Nonetheless – on paper, at least – these annual increments still have to be agreed to by the social partners on the MCESD: which naturally includes both the Chamber, and the GWU.

For this reason, it is rather presumptuous – though not exactly surprising – of the Chamber of Commerce to keep trying to pre-emptively ‘dilute’ the COLA mechanism: in the most recent case, by proposing changes to the original MCESD agreement (to which it is party itself).

In its pre-budget document, the Chamber proposed that employees who receive a pay rise in 2022, should not receive the full COLA increment, but only the difference between the COLA increment and their pay rise: as they would “have their purchasing power at least partially safeguarded”.

For those who were recruited during the year, the COLA entitlement should be ‘capped at the equivalent portion of the year for which they have been in employment’.

Understandably enough, this provoked an angry reaction by the GWU: which retorted that “during the last 32 years, the agreement has never changed, and the proposal being made by employers will result in a violation of the law”.

The Union also added, somewhat sardonically, that “when in the past an employee was given a few cents according to the mechanism, it was accepted because it was according to what was agreed; so now that [COLA] will be high, it must not be touched either”.

There is certainly a lot of logic to that assertion: after all, the Chamber of Commerce was only too happy to accept the agreed formula… at a time when it usually resulted in meagre weekly handouts, often amounting to less than one euro.

And while there may some truth to the Chamber’s counter-argument, that such a steep COLA increase may ‘render Maltese businesses uncompetitive’, it also raises the uncomfortable notion that those businesses only remain ‘competitive’ at the expense of employees who must now face mounting inflationary pressures… at a time when national salaries have not increased even remotely in proportion with the sky-rocketing cost of living.

Moreover, the same Chamber of Commerce – along with the Malta Employers’ Association – has also spent years resisting the idea of a national minimum wage increase: a fact which, in some cases, makes many of those employees literally dependent on the COLA weekly increases, to meet even their most basic needs.

But there is another reason why the Chamber’s proposal is unsound, at this juncture in time. As the GWU rightly noted, “the government is taking several measures to maintain competitiveness, by absorbing the cost of electricity, water, fuel and cereals”.

Indeed, the Chamber itself appeared to agree: pointing out – also in its pre-budget document - that “Malta’s inflation rate would be much higher if the energy prices were not heavily subsidised”.

And so, too, would the weekly COLA wage adjustments. According to Finance Minister Clyde Caruana, “[wages] would have to increase to around €17 by the next Budget if government wasn’t subsidising fuel and other basic goods”.

During a speech in parliament last month, Caruana said that calculations by his ministry showed that employers would have to pay between €16 and €18 a week to cover their COLA costs, resulting in a minimum €800 to €900 of additional costs for the year.

Caruana also added: “We have to do whatever it takes for these burdens and challenges put to us by the [Ukraine] war to continue being carried by government. I can’t ever imagine how businesses would suddenly pay €17 or €18 in COLA, without some of them going crazy from the impact.”

As such, the Chamber of Commerce would be wise to desist from trying to wriggle out of its agreed obligations, with regard to COLA wage-increases. For if government were to do the same thing, with its own commitment to continue subsidising the entire private sector, at enormous cost to the taxpayer… those businesses would surely not remain ‘competitive’, either.

Ultimately, however, Malta’s business community also needs to remember that its own competitiveness is not the only thing that needs ‘safeguarding’, in this country. A little more fairness, all round, would not be amiss.