The announcement by the Prime Minister that the government is prepared to top up the 58c cost-of-living adjustment expected in the next Budget with “other measures” is a clear sign that something is amiss with the COLA mechanism that has been a cause of controversy for many years.

Malta is one of the few EU countries where wages are adjusted in accordance with the inflation rate as measured in percentage terms by the Retail Price Index. The increase is mandatory for all employers who all along have insisted that wage increases should also be linked to productivity, rather than solely to inflation.

The European Commission has more than once called for changes in the COLA mechanism saying it should ensure that wage growth reflects development in labour productivity and competitiveness, a view not shared by trade unions that consider the COLA untouchable.

Clearly to put employers’ minds at rest, the Prime Minister has made clear that he does not intend to tinker with the COLA mechanism, the result of an agreement between the social partners.

Yet, his announcement that COLA as calculated through an established formula is not enough and needs to be topped up for the lower income groups is either an admission that the mechanism is failing to meet its objectives or that the government no longer believes in it. Whichever it is, the Prime Minister cannot sit on the fence on this matter.

Since the downward revision of water and energy rates earlier this year, the government has been repeatedly drumming in the fact that inflation has never been so low in years. It is because of that very low inflation rate –­ for which the government claims credit ­– that the COLA mechanism comes to the 58c figure. And now the Prime Minister says he will top it up.

Helping the lower income bands will not compensate for the impact the mere 58c rise will have on general consumer confidence and consequently the retail sector. The public perception is that COLA is a wage increase to look forward to at each Budget, rather than a simple inflationary adjustment.

In a way, the government is a victim of its own success in keeping inflation down through a number of measures, but most especially through the downward revision of water and electricity rates that were meant to come from a gas-powered power station that remains to be built.

The consortium that is to build the new power station was also to foot the bill for the energy cuts to families in the first year, but that has not happened. The cuts come from the public coffers, whichever way the government tries to present them. The next Budget will now include the government’s promise to cut the rates for businesses in March, when it is now clear that the power station will notbe ready.

The government has financed the energy cuts which led to the low COLA and is now promising to top up COLA through further public expenditure.

The Prime Minister should have stuck to the original rhetoric that the cost of living has gone down and that 58c will have to do. He has instead buckled underthe public’s disappointment at thelow COLA.

He said he will not meddle with the COLA itself as that would set a precedent and create other problems down the road. Yet his public disappointment with the COLA mechanism, and his promise to make up for the perceived shortfall, has undermined the original purpose of COLA, which was stability.