The Malta Employers' Association said yesterday the "outdated" cost of living adjustment (COLA) mechanism was penalising important industries as it inflated their labour costs year after year.

According to MEA president Arthur Muscat, important revenue-generating companies that have been around for the past 15 years or so are finding themselves at a disadvantage as their legal obligation to grant the cost of living increase to each employee is inflating their costs.

"Let us make it clear that competitiveness does not only depend on labour costs. Other important areas - such as infrastructure, the reform of the ports and the better management of public funds - should also be addressed," he said.

Mr Muscat was speaking at a press conference during which the MEA published a paper giving reactions to the government's pre-budget document For a Better Quality of Life and the consultation document on the National Reform Programme.

When addressing the measures that should be taken by the government to encourage economic growth, the MEA said COLA should be awarded only to minimum wage earners "to guarantee a minimum standard of living".

The employers also suggested that public service employment should be reduced from 33 per cent to 27 per cent, which would reduce the fiscal deficit without resorting to additional taxes and thus stimulate growth in the private sector.

"Controlling the payroll should be supplemented with other measures to reduce public expenditure. The MEA agrees in principle with the proposals to reform the social transfer and health care systems, which are currently also subject to abusive practices."

The government's role, the MEA said, should be that of encouraging private initiatives that will, in turn, win back the country's competitiveness.

"Potential investors get a very bad impression when faced with unnecessary bureaucracy in setting up business in Malta. There have been cases where investment and employment opportunities have been lost because of this situation," the document said.

The MEA pointed out that port reform was of utmost importance to improve Malta's competitiveness, adding that businesses expected port-related charges and costs to go down by at least 25 per cent once the reform is implemented.

It was also essential to upgrade the skills of the Maltese workforce with an emphasis on innovation and entrepreneurship. In one case, the MEA said, the education system was presenting barriers to students who wished to continue their studies as institutions did not recognise one another's qualifications.

"The association has received reports that students who have successfully completed their B Tech qualification at MCAST are not being accepted to follow degree courses at the University of Malta," the MEA said, adding that these students were being accepted by UK universities "at considerable cost and needless sacrifice".

"The government should ensure that students do not end up victims of parochial feuds between the university and MCAST."

With regard to fiscal measures, the MEA said the government should introduce a flat tax regime on all income, as had been successfully done by other countries.

The MEA said the government's proposal to shift to environment-related tax would work if this "lives up to what it promises to be".

"There is a general perception that the wardens operate more as a revenue-generating machine for local councils than to ensure compliance with the law and this leads to resentment rather than to acceptance of such measures."

On tourism, the MEA said the government should consider the benefits of introducing low cost airlines. "It is hard to envisage that Malta can be a competitive tourist destination if its main competitors are accessible at much cheaper flights than ours," the association said, adding that a way should be found for low cost airlines to coexist with the national airline.

In its conclusions, the MEA said it agreed with the general thrust of the reforms being proposed by the government but said it was now important for the government to start implementing such measures.

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