There will be no mid-stream change in the cost-of-living adjustment (COLA) mechanism because both the government and the other members of the Malta Council for Economic and Social Development (MCESD) have agreed that the current level of inflation was not excessive.
Finance Minister Tonio Fenech said this while replying to a number of supplementary questions in Parliament by opposition MPs Leo Brincat and Joe Mizzi.
It all started when the minister answered a PQ by Labour MP Anthony Agius Decelis, who had asked if any study had been carried out to see how the people had been affected by the price increases for oil and its derivatives.
Mr Fenech said that, as had been announced in Budget 2011, the Economic Policy Division had carried out a study on the impact of inflation, which study had been discussed at the MCESD. The study had considered the impact of essential products which included, but were not limited to, oil and its derivatives.
The study had shown that in spite of the increases, which had largely been the result of price increases on international markets, the impact on inflation had not been extraordinary. The study had concluded that the government should hold on to the COLA mechanism when calculating any increa-ses to be announced in the Budget.
Opposition MP Leo Brincat asked the minister about the government’s thinking on Brussels’ request to Malta to accelerate its pensions reform and amend its cost-of-living adjustment mechanism by the end of next year (please refer to yesterday’s edition of The Times).
Mr Fenech said Malta was one of only four EU countries that still had a mechanism to establish cost-of-living adjustments. Malta’s mechanism had helped to increase competitiveness and stability by ensuring no industrial disputes arose with regard to purchasing power. It had also ensured a wage moderation policy through the years.
It therefore followed that doing away with this tried-and-tested mechanism would be a mistake. This was why the government had held firm in the face of the EC’s pushing. Once it had explained in Brussels what the COLA had done for Malta, it had been found to make sense.
That was not to say that the mechanism did not need any fine-tuning. The trade unions’ pet hate was that COLA was given after inflation had already affected purchasing power.
Talks had started on refining the mechanism, but the basis was there to stay.
Answering another question by Mr Brincat, Mr Fenech said Brussels had requested, not obliged, Malta to amend the mechanism.
Opposition Whip Joe Mizzi asked why no mention was being made of any compensation for energy prices.
Mr Fenech said that up to the study’s cut-off date, inflation had been two to 2.5 per cent. It certainly did not make sense to start a system of adjusting wages monthly or every time there was a move in prices. Besides, the energy benefit given in 2010 had also been intended to cover price increases for gas.
The COLA mechanism was guaranteed to award compensation for the cost of living in Budget 2012. The bottom line was that financial sustainability was a priority for the country.