The finance minister has ruled out changing the cost-of-living adjustment mechanism unless there is unanimous agreement between employers, unions and the government.
Recent indications pointed towards a compensation of between €5 and €6 per week, he said, less than the €7 per week quoted by employer organisations last month.
"Government will not be taking any unilateral action on COLA," Tonio Fenech insisted, pointing out that the law made it clear that any change required the agreement of unions and employers.
Mr Fenech was speaking at the launch of the 147-page pre-budget document titled Growth, Jobs and Social Cohesion.
He said the debate initiated by employers on the cost-of-living compensation for next year only focussed on one aspect of competitiveness and risked being "cosmetic" since there were other issues at stake.
"I do appreciate the preoccupation of some employers, who may find it hard to give the full cost-of-living compensation, but we need to look at the wider picture," Mr Fenech said, insisting that the mechanism did allow for discussion if certain sectors of the economy found it difficult to award the full increase.
The whole debate was sparked by what the minister termed a "premature indication" that compensation was to amount to €7 per week in 2010.
"The most recent figures show that compensation may range between €5 and €6 per week since inflation has eased," he said.
The pre-budget document presents an in-depth analysis of the strengths and weaknesses of the economy and government finances but has few concrete proposals on what the government is contemplating for the budget.
When asked about this, Mr Fenech said the government did not want to come up with a document containing pre-conceived ideas but wanted to hear from the public what they were expecting.
The more recent projections put the deficit this year at minus 3.8 per cent, which would be 0.8 percentage points above the EU's threshold.
"In order to address the excessive deficit by 2010, a fiscal adjustment of around one percentage point is required," the document says.
The document outlines the options available, insisting that any cuts in recurrent expenditure would have little impact on reducing the deficit in view of the government's reluctance to lay off civil servants and cut social services.
"Addressing the current excessive deficit calls for consideration of other items particularly public investment and the revenue side of the budget," the document says.
This means the government would have to cut capital investment or raise taxes to reduce the deficit. However, Mr Fenech did not give an indication of where the pendulum would swing when the budget is drawn up later this year.
He maintained that the government had to sustain public investment such as the Renzo Piano project while at the same time it had to retain competitiveness in labour taxes.
One important aspect highlighted in the document is the need for more people to enter the productive labour market, in particular women and pensioners who would continue to work beyond retirement age.
The minister invited the public to take part in the debate on the document. The pre-budget document is available on the website: www.budget2010.com.mt
ksansone@timesofmalta.com