Employers are still worried that the cost-of-living allowance could have a negative impact on some businesses, even though an analysis by a leading audit firm showed the impact on payroll costs would be minimal.

Malta Employers' Association director general Joe Farrugia reiterated his concern that the €5.82 weekly wage increase could even lead to redundancies if companies were unable to pass on the cost to their consumers or absorb it themselves.

"This increase will mean that companies would need between one and two weeks of added productivity to make up for the increased cost," he told The Times.

Before Finance Minister Tonio Fenech announced the cost-of-living adjustment in last Monday's Budget, employers had warned a big increase could lead to around 1,000 redundancies.

But on Thursday, The Times published an analysis by audit firm PricewaterhouseCooopers showing that the impact of the COLA on payroll costs for typical manufacturing companies or hotels would only add up to a two to three per cent increase.

Moreover, the conclusions of this analysis were corroborated by a study presented to social partners by Finance Minister Tonio Fenech a few days before the Budget.

Still, Mr Farrugia insisted that some companies would struggle to deal with this increase, and especially mentioned the tourism sector and low-end manufacturing companies.

"When you have a shrinking economy and you increase salaries, there is a risk of redundancies," he said.

Mr Farrugia said redundancies were what should be avoided at the moment since there was still a lot of uncertainty about the global financial situation.

"There are no guarantees that we will get out of the recession by the end of the year. And even if we do, some companies might still be struggling."

He argued that even if the world managed to get out of the recession sooner rather than later, there was a fear that job recovery would be slow.

"That is why it is imperative to safeguard jobs," he said.

The Budget itself stresses this theme of job creation, but can the increased burden undo the positive effect of some of its measures?

For instance, Mr Farrugia argued that a €2.5 million fund set up to help companies in trouble would not be enough.

"I hope that the government will be willing to increase it if there are more companies facing difficulties," he said.

He said that he would have preferred if the government had directed the €10 million in direct financial assistance for families to counter the higher water and electricity bills into helping companies retain workers.

He added that this was unlikely to be a one-off measure because there would be political pressure to repeat it next year.