'The MEA cannot accept that the COLA mechanism is abandoned and that wage increases are announced at the whim of the government. This will set a dangerous precedent that will destabilise the collective bargaining system and the operations of the labour market.'
The Malta Employers' Association (MEA) has insisted that it cannot accept wage increases by the government that would signal the abandonment of the Cost of Living Adjustment (COLA) mechanism.
Speaking ahead of the presentation of the Budget this Monday, MEA Director-General Joe Farrugia said that statutory wage increases had been stable and based on the workings of the retail price index and the COLA mechanism for the past few years, and this was always respected by employers.
An exception was made two years ago, as a reaction to the sudden oil price increases which led to the imposition of a surcharge on electricity bills. Following talks in the Malta Council for Economic and Social Development (MCESD), the cost of living was supplemented with a "one off" increase which was to be deducted from COLA of the following year.
Now another threat was looming, with food prices expected to spiral as a result of sharp increases in the international price of grains and related raw material.
"Since the government has managed, to its merit, to keep price increases to a minimum and COLA is based on the calculation of inflation over the 12 months up to the end of September, the cost of living adjustment which should be announced in the budget should be between 50c and 75c per week.
"In contrast, forecasts for inflation for 2008 are substantially higher. The dilemma, therefore, is whether to compensate for the inflation of the past 12 months, or to order a wage increase to cover the probability of price increases in the coming year."
Mr Farrugia said the COLA mechanism was never designed to anticipate inflation, and could not be expected to do so.
"The Malta Employers' Association is resisting supplementing COLA with any other additional increases for 2008 for a number of reasons:
"Many employers will have entered into contractual agreements based on the projected COLA, and an additional increase will affect them negatively.
"Although it may be argued that many employers can afford to give an increase in addition to the COLA calculation, what is hardly ever mentioned about the concept of a minimum wage is that, besides guaranteeing a minimum standard of living, the minimum wage also safeguards jobs. Many workers would prefer to work at a relatively low wage than to become unemployed.
"Although the economy is generating high value added jobs as a result of an impressive increase in investment, there are companies that are vulnerable to wage increases and are struggling for survival in increasingly competitive conditions.
"These companies may not be in a position to absorb the impact of an increase in addition to the COLA, especially since many are still coming to grips with the additional costs of the pro-rata benefits to part-time employees that came in force on July 1."
Moreover, Mr Farrugia said, many companies would have negotiated collective agreements with provisions for wage increases above COLA, and yet another sizeable segment of the labour force had a negotiated package that allowed for increases well above the statutory minimum.
"The MEA cannot accept that the COLA mechanism is abandoned and that wage increases are announced at the whim of the government. This will set a dangerous precedent that will destabilise the collective bargaining system and the operations of the labour market.
"The fall in unemployment, and the rising demand for qualified people is already leading to wage inflation that more than compensates for any inflationary pressures. MEA, therefore, insists that the present system for granting wage increases to compensate for inflation is respected."
Mr Farrugia said the MEA was ready to discuss any changes to the COLA mechanism to reflect the changing global environment, but any such debate should occur at the MCESD, and not introduced arbitrarily in the budget.
"When the Social Pact was being discussed, employer bodies favoured shifting wage-setting away from the RPI and towards pegging it to productivity. In the present circumstances, with a low inflation rate and a relatively high real GDP growth rate, this would, in all probability, have resulted in a higher wage increase than COLA," Mr Farrugia observed.
He said the MEA had forwarded constructive proposals through which the government could increase disposable income. Among them was a revision of income tax bands so as to bring about lower income tax rates as long as this did not have an adverse effect on the fiscal balance. The experience during 2007 was that the downward revision of tax bands had resulted in increased revenue to the government.
"The MEA believes that, given that the current rate of economic growth is sustained, further reductions are possible without reducing revenue."
Mr Farrugia said the MEA did not agree with tax cutting proposals announced by the GRTU last week, since, he said, it was neither realistic, nor desireable to expect the government to incur a sudden shortfall of Lm40 million in its revenue.
"Clearly, the current state of the economy is such that allows the government to take mild expansionary measures within the tight constraints of fiscal stability and national competitiveness, in spite of the temptation and the pressure to do otherwise, at this juncture in the electoral cycle.
"Among these pressures is the withdrawal of the government's decision regarding public holidays during weekends. MEA believes that the public holidays decision tangibly contributed to the economic upturn of the past two years, and was also a symbolic measure that demonstrated that the government was prepared to take the bull by the horns and tackle issues related to national competitiveness. The latter gave positive signals to employers which should not be repealed if the growth momentum is to be sustained in the coming years."
The Malta Employers' Association (MEA) has insisted that it cannot accept wage increases by the government that would signal the abandonment of the Cost of Living Adjustment (COLA) mechanism.
Speaking ahead of the presentation of the Budget this Monday, MEA Director-General Joe Farrugia said that statutory wage increases had been stable and based on the workings of the retail price index and the COLA mechanism for the past few years, and this was always respected by employers.
An exception was made two years ago, as a reaction to the sudden oil price increases which led to the imposition of a surcharge on electricity bills. Following talks in the Malta Council for Economic and Social Development (MCESD), the cost of living was supplemented with a "one off" increase which was to be deducted from COLA of the following year.
Now another threat was looming, with food prices expected to spiral as a result of sharp increases in the international price of grains and related raw material.
"Since the government has managed, to its merit, to keep price increases to a minimum and COLA is based on the calculation of inflation over the 12 months up to the end of September, the cost of living adjustment which should be announced in the budget should be between 50c and 75c per week.
"In contrast, forecasts for inflation for 2008 are substantially higher. The dilemma, therefore, is whether to compensate for the inflation of the past 12 months, or to order a wage increase to cover the probability of price increases in the coming year."
Mr Farrugia said the COLA mechanism was never designed to anticipate inflation, and could not be expected to do so.
"The Malta Employers' Association is resisting supplementing COLA with any other additional increases for 2008 for a number of reasons:
"Many employers will have entered into contractual agreements based on the projected COLA, and an additional increase will affect them negatively.
"Although it may be argued that many employers can afford to give an increase in addition to the COLA calculation, what is hardly ever mentioned about the concept of a minimum wage is that, besides guaranteeing a minimum standard of living, the minimum wage also safeguards jobs. Many workers would prefer to work at a relatively low wage than to become unemployed.
"Although the economy is generating high value added jobs as a result of an impressive increase in investment, there are companies that are vulnerable to wage increases and are struggling for survival in increasingly competitive conditions.
"These companies may not be in a position to absorb the impact of an increase in addition to the COLA, especially since many are still coming to grips with the additional costs of the pro-rata benefits to part-time employees that came in force on July 1."
Moreover, Mr Farrugia said, many companies would have negotiated collective agreements with provisions for wage increases above COLA, and yet another sizeable segment of the labour force had a negotiated package that allowed for increases well above the statutory minimum.
"The MEA cannot accept that the COLA mechanism is abandoned and that wage increases are announced at the whim of the government. This will set a dangerous precedent that will destabilise the collective bargaining system and the operations of the labour market.
"The fall in unemployment, and the rising demand for qualified people is already leading to wage inflation that more than compensates for any inflationary pressures. MEA, therefore, insists that the present system for granting wage increases to compensate for inflation is respected."
Mr Farrugia said the MEA was ready to discuss any changes to the COLA mechanism to reflect the changing global environment, but any such debate should occur at the MCESD, and not introduced arbitrarily in the budget.
"When the Social Pact was being discussed, employer bodies favoured shifting wage-setting away from the RPI and towards pegging it to productivity. In the present circumstances, with a low inflation rate and a relatively high real GDP growth rate, this would, in all probability, have resulted in a higher wage increase than COLA," Mr Farrugia observed.
He said the MEA had forwarded constructive proposals through which the government could increase disposable income. Among them was a revision of income tax bands so as to bring about lower income tax rates as long as this did not have an adverse effect on the fiscal balance. The experience during 2007 was that the downward revision of tax bands had resulted in increased revenue to the government.
"The MEA believes that, given that the current rate of economic growth is sustained, further reductions are possible without reducing revenue."
Mr Farrugia said the MEA did not agree with tax cutting proposals announced by the GRTU last week, since, he said, it was neither realistic, nor desireable to expect the government to incur a sudden shortfall of Lm40 million in its revenue.
"Clearly, the current state of the economy is such that allows the government to take mild expansionary measures within the tight constraints of fiscal stability and national competitiveness, in spite of the temptation and the pressure to do otherwise, at this juncture in the electoral cycle.
"Among these pressures is the withdrawal of the government's decision regarding public holidays during weekends. MEA believes that the public holidays decision tangibly contributed to the economic upturn of the past two years, and was also a symbolic measure that demonstrated that the government was prepared to take the bull by the horns and tackle issues related to national competitiveness. The latter gave positive signals to employers which should not be repealed if the growth momentum is to be sustained in the coming years."