Business groups have criticised the proposed weekly wage increase for 2012 of €4.66, reiterating, as in previous years, their view that the workings which led to it had no relation to productivity and put Malta’s competitiveness at risk.

Calculated under a largely disputed formula based on the retail price index, the figure came as no surprise to any of the groups.

The wage increase, nearly four times last year’s €1.16, will be announced in the Budget which is widely expected in mid-November. First revealed by The Times on Monday, the cost of living increase is the second highest to be granted in the last 15 years after 2010’s €5.82.

“This formula which served us in the past is however basic and inflexible as it has no relation whatsoever with productivity. Therefore, this may often result in wage increases that are not affordable for a number of businesses,” Malta Chamber of Commerce, Enterprise and Industry deputy president Stefano Mallia told The Times Business. Mr Mallia is the Malta Chamber’s representative on the Malta Council for Economic and Social Development COLA working group.

He said that throughout its active participation in the MCESD working group, the Malta Chamber had proposed a revision to the current formula so that it would be linked to productivity and factor in inflation. Without suggesting a revised formula would be a complete solution to Malta’s competitiveness issues, the Malta Chamber believed it was a way to begin to address them.

“In our view, this is the most equitable approach as it takes into consideration inflation which has an impact on the spending power of consumers while reflecting the country’s actual productivity,” Mr Mallia said, adding that the Malta Chamber had presented proposals on how a revised formula could be fine-tuned in the future.

“This approach also goes some way towards addressing the preoccupations raised by the European Commission about the COLA system. The Malta Chamber hopes that the efforts made by this working group will be implemented sooner rather than later to the benefit of national competitiveness.”

Malta Chamber of Small and Medium Enterprises (GRTU) director-general Vince Farrugia emphasised that all efforts to change the formula over recent years have failed.

He said that in the absence of an agreed alternative, the GRTU believed the current formula made no sense.

“It would create unnecessary industrial strife which will be doubly bad for the economy, given the current slow economic growth. It is also unfair to the lower income groups whose purchasing power is suffering due to the increased cost of living, among other factors.”

He highlighted how the European Commission had objected to the indexation of wages in Malta and the EC had commented to this effect after the government’s submission of the planned Budget 2012 strategy.

Unions, parties ‘ignore realities’

However, the GRTU agreed with the government that the COLA wage adjustment was technically not wage indexation as it was not a percentage increase right across the board.

Rather, it was a scheme that effectively supported the lower income groups, those with the highest propensity to consume whatever they earned and who were extremely important to sustain an acceptable level of high private consumption so necessary for most GRTU members, he said.

The Malta Employers’ Association also expressed concern about the COLA’s impact on businesses, saying it was an added cost that could lead to serious consequences.

“Companies which cannot pass this cost increase on to their clients, or which cannot compensate for it through added productivity, will have to absorb it to the detriment of their performance, which could lead to lower profitability, losses, and layoffs,” MEA director general Joe Farrugia said.

He said many employers were concerned that as COLA was an ‘automatic’ measure, the increase was insensitive to the international economic environment and could deal a heavy blow to Malta’s competitiveness.

“Unions and political parties are conscious of this reality but ignore it because it is convenient for them to play a tune which their public want to hear.

“Every year there is this automatic increase, our competitive fabric is stretched a bit further. Let’s hope it doesn’t tear, as has happened in other countries,” Mr Farrugia warned.