The recent study issued by KPMG on the Maltese economic outlook should raise quite a few alarm bells. It spells out in no uncertain terms that the government’s measures to ease the pain of inflation were not enough. And it is a situation that would only get worse when, not if, those measures had to be phased out.

In an ideal world, those measures could continue forever. In the real world, they are not sustainable and deplete ‘rainy day funds’ that may be needed for reasons which originate beyond our shores, a lesson we should have learned from the pandemic, the Ukraine war and, now, the Gaza war. If you have no wiggle room when the going gets tough, you cannot protect your people from the pain. Quality of life will fall, income inequalities will grow and social cohesion will be eroded.

KPMG’s Malta Economic Outlook tackled the ‘Recent Trends in Real Wages’, noting that the amount you got in your wage packet may have been increasing in terms of numbers but that what you could afford to buy with it was simply not keeping up. This should come as no surprise to those who have been watching the cost of living: in Malta, the Harmonised Index of Consumer Prices (HICP), which is used to measure inflation across the EU, went up by 5.7 per cent in 2023.

However, that year, wages only went up by 1.5 per cent, according to the European Commission’s autumn forecast issued last November.

When you look back over the past few years, nominal wages – what you are actually paid – went up between 2020 and 2023. But real wages – which adjusts that wage by what you can buy with it – stayed more or less the same, actually dipping somewhat last year.

This is all the more important when you consider that this happened at a time when the economic growth calculated by credit rating agency Fitch was approximately 17 percentage points above that of pre-pandemic 2019 levels.

Can this carry on in the foreseeable future? The Central Bank of Malta forecasts that the economy will grow by 4.4 per cent in 2024, slowing down to 3.6 per cent in 2025 and 3.3 per cent in 2026.

The situation in terms of people’s purchasing power is more dire when you consider that the government is already protecting us from the worst of inflation’s impact by partly covering food and energy increases – something international entities such as the EU and the International Monetary Fund have repeatedly urged the government to reconsider.

The study, though, has another enormous red flag: averages are notoriously misleading. The average wage includes both higher-paying jobs, where productivity has risen, and lower-paying jobs, where hardly anything has improved – quite the contrary, as a cursory look at the jobs fobbed off to poorly-trained, low-skilled and inexperienced workers indicates.

This is why KPMG is repeating the mantra of past years: wages should rise primarily because productivity is increasing and more value is being added and not only to counter inflation. When people feel that their lifestyles are deteriorating because they can no longer afford the same things, the immediate knee-jerk reaction is to ask for a wage increase, overlooking whether a company’s finances indicate that this would be sustainable.

At the moment, the light in the end of the inflation tunnel seems to be leading to an easier phase. The HICP should ease from 5.6 per cent in 2023 to 2.9 per cent this year and, by 2026, should dip below the European Central Bank’s two per cent target rate.

The government relies on the ‘feel good’ factor for its popularity to eclipse the more negative aspects of this legislation. Who knows what would happen if people realised that their pockets were emptier and they really started to query the disastrous decisions being made?