Seventy-four per cent of businesses are not in a position to absorb a Cost of Living Adjustment increase of between €5 and €7 for 2010, according to a survey conducted by the Malta Employers’ Association among its members.

Twenty-per cent of respondents said their company would manage a COLA increase by reducing the labour force and cutting overtime, while 25 per cent said they would increase their prices to customers. One third of those surveyed said they would improve efficiency as a result of a COLA Increase.

Finance Minister Tonio Fenech has said that a €5 to €6 COLA increase will most likely be announced in the next budget. In an interview in today’s The Times Business Mr Fenech defended the COLA mechanism saying it brought about industrial stability.

The survey was conducted to assess the impact of the COLA mechanism on business and employment as well as to measure the impact of the international recession.

A number of budget measures were proposed by those surveyed, the most common ones being a freeze or lowering of the utility rates, a reduction in income tax, the removal of COLA or the application of COLA to minimum wage earners only and a reduction in VAT.

Not surprisingly 50 per cent of the respondents said that their company had been affected strongly by the international recession while 38 per cent said they had been affected mildly.

Twenty-four per cent of those surveyed said they do not envisage that they will reach previous levels of activity in the future, whereas 66 per cent anticipate a return to previous levels of activity. Half of the respondents expect that the recovery will take between one and two years to materialise, and an additional 26 per cent expect the recovery to take between six months and a year. Only four per cent anticipate a recovery in the coming six months.

Almost half of the respondents said they have suffered a decrease in productive hours over the past 12 months while 39 per cent said that their productive hours remained the same.

The survey shows that many employers resorted to natural wastage and curtailment of overtime to deal with a contraction of business which could explain why there has been no dramatic increase in unemployment in Malta over the past 12 months.

Fifty-three per cent of those questioned envisage an expansion in their business activity over the next three years whereas 24 per cent said they do not.

The MEA’s budget recommendations to the government, based on the results of this survey, will be presented to the media this morning.