Pension, welfare reforms unlikely in next budget

Pension and welfare reforms were unlikely to be introduced in the next budget although reference to them would be made, sources present at the weekend "retreat" of the Malta Council for Economic and Social Development said yesterday.

The sources also said the government was likely to go ahead with the expected three per cent increase in VAT, but would make a one-off payment to offset its effects in the first year.

The Gozo meeting, which ended yesterday, allowed participating unions, employers and the government, represented by Finance Minister John Dalli, to "better understand each other's needs and constraints", the sources said.

The two major issues on the agenda were pension reforms and the introduction of a three per cent consumption tax to make good for health services.

References to pension and welfare reforms are expected to be made in the budget but no changes to the systems are likely to be introduced as yet.

A report on the socio-economic impact of the reforms is expected to be in the government's hands in January, and is expected to be discussed and approved by June, the sources said.

All the social partners spoke against the idea of introducing a three per cent consumption tax, which would in effect raise VAT to 18 per cent.

The overall feeling was that all sectors of the economy, ranging from tourism to retailing, would be adversely hit by a direct or indirect increase in consumption tax.

Sources said it appeared that the tax would be introduced and that the solution was going to be a one-off payment to offset it in the first year.

The government argued that because the inflation rate was so low, an increase of three per cent in consumption tax would not make a big impact on the cost-of-living index.

Other aspects discussed were the need to beef up the MCESD so that it would be able to take decisions within certain time frames, and the need to continue to curb tax evasion.

Passing remarks were made about the ripple effects that the shipyards' collective agreement would have if unions were to try to introduce certain concepts from it, such as the 35-hour week, to the private or public sectors.

The sources said the meeting "was quite animated and at times stormy", with the social partners at one time threatening to leave the meeting and return to Malta.

But other sources described such tactics as more akin to "acting" than real threats.

Contacted for his reactions, CMTU president Alfred Buhagiar said the discussion had been "fruitful".

"Mr Dalli took note of what we said and we noted what he said. We are aware that problems exist and we intend working towards finding ways of solving them without causing unnecessary shocks."

Union Haddiema Maghqudin general secretary Gejtu Vella said that although the discussion "was very vigorous at times, it was a good, meaningful social dialogue. We have heard and recognise the government's and employers' difficulties and they have heard ours.

"We will be listening attentively to the budget speech to see whether what we have said was taken into consideration," Mr Vella said.

GRTU director general Vince Farrugia said the GRTU had already given the government warnings that it would have problems if it went ahead with an increase in VAT.

"Apart from the economic problems such a tax would create, it would be perceived by people as a tax on consumption to pay for the deficiencies of the government," Mr Farrugia said.

GWU general secretary Tony Zarb said the union gave its views and made it clear where it did not agree with the government's proposals.

"It is now up to the finance minister to come out with a formula after hearing what we all had to say.

"But it appears that the pension and welfare reforms will not form part of the next budget as we need actuarian reports in order to discuss the issues more tangibly," Mr Zarb said.