[WATCH] COLA wage increase could hit €6 next year if prices continue same upward trend

Xtra on TVM Newsplus |Economist Philip von Brockdorff and GWU chief Josef Bugeja discuss the impact of rising prices on spending power and the economy

GWU Secretary-general Josef Bugeja (left) and economist Philip von Brockdorff
GWU Secretary-general Josef Bugeja (left) and economist Philip von Brockdorff

Wages could increase by more than €6 per week next year if the cost of living continues the upward trend seen so far, a leading economist has said.

Philip von Brockdorff, professor of economics at the University of Malta, said the retail price index stood at 4.4% in March and is anticipated to increase again in April.

“If things continue as they are, the cost of living adjustment (COLA) in the next budget could be more than €6,” he said during a discussion on TVM News Plus’ Xtra, hosted by Saviour Balzan.

Von Brockdorff said that the wage increase could render some sectors of the economy less competitive but this was mitigated by the government’s heavy intervention to maintain energy prices stable.

Keeping energy prices stable helped remove uncertainty, he said, adding however, that if energy prices continue increasing it will be difficult for government to maintain the same level of support.

The RPI is the index upon which the COLA increase is based. The wage increase that kicks in on 1 January every year is mandatory and reflects the previous year’s inflationary impact. Food prices and materials used in construction and housing are the primary drivers of inflation.

Von Brockdorff said the European Central Bank is very likely to increase interest rates this year to control inflation. This will essentially make loans more expensive and can slow down business investment decisions.

GWU to ask for COLA to be awarded twice

General Workers Union Secretary-general Josef Bugeja said the cost of living was eroding people’s spending power at a time when many workers were getting off the COVID wage and back to their normal pay.

He acknowledged that the subsidisation of energy and fuel was an important factor to suppress the impact of inflation. He estimated that without the State subsidy of energy prices and fuel, wage compensation for the cost of living could even reach €12 per week.

Bugeja said his union has asked for a meeting of the Malta Council for Economic and Social Development to discuss a way forward on inflation and its impact on families and the economy.

“The GWU will be asking that the COLA be given in two parts so that part of the adjustment is awarded this year rather than wait for the full increase in January next year,” Bugeja said.

He added that the union will also insist on help for those most in need, who are worse off as a result of rising prices.

“We have the advantage in this country that social dialogue is very strong and to manage the existing crisis we need to pull the same rope. Everyone has to shoulder the burden and not just workers,” Bugeja said. 

PN spokesperson Ivan J. Bartolo (left) and Economy Minister Silvio Schembri (centre) with Xtra host Saviour Balzan
PN spokesperson Ivan J. Bartolo (left) and Economy Minister Silvio Schembri (centre) with Xtra host Saviour Balzan

Earlier in the programme, Economy Minister Silvio Schembri said government’s policy decision to cushion the price of energy was aimed at removing uncertainty.

“Uncertainty is the worst enemy of business… [despite millions spent] the impact on the economy of doing nothing is much greater because experience has shown us that uncertainty stifles investment,” Schembri said.

Opposition shadow spokesperson Ivan J. Bartolo said it was a fact that Malta ended last year with the highest deficit in the EU as a result of COVID spending and called for more effort to be spent on attracting new economic sectors.

“I will not criticise the money spent but I would be using this time to see what new industries can be created and how to influence and improve the education system and facilitate the process at Identity Malta to make it easier for companies to bring over foreign workers,” Bartolo said.

On changes to the corporate tax regime, Schembri said it was important that there is cooperation and consensus between the government and the Opposition.