Further to the announcement of the COLA and the increases in water and electricity tariffs, the Malta Chamber of Commerce, Enterprise and Industry has followed up its previous positions with further research in an attempt to quantify the exact direct and indirect effects of COLA on their wage bills.
This exercise also quantifies the increase in water and electricity bills expected in 2010 assuming current year consumption and rates at par with October 2008 levels and the effect of the 0.50c bed night tax on accommodation establishments where applicable.
The analysis also attempts to give indications about the increase in turnover that would be required to neutralise the accumulated cost effect. To arrive at these figures, the study assumed an average five per cent margin for the manufacturing industry and 20 per cent for the importation, financial services and tourism sectors.
The table below presents hypothetical examples based on actual experiences encountered by real-life companies. The Malta Chamber is drawing the following examples below to illustrate the effects in each of the sectors it represents.
It is clear from the information above that companies across different business sectors are expecting significant increases in their cost structures as a result of recently announced policy measures. It is worth noting that the impact of COLA on the wage bill excludes national insurance contributions which the employer would have to pay for salaries below the statutory threshold. Besides, those companies that, in the past, tended to voluntarily adjust upwards the COLA award in favour of the employee, may not be in a position to do so this year with a COLA in the region of €6 per week.
These increases need to be placed in the context of two important realities that business is currently facing, namely that business has endured several months of low activity and reserves are low and that the general business environment is still not very promising or conducive to growth.
Example A above refers to a company engaged in importation employing just under 100 people. This company was already expecting a 20 per cent deterioration in bottom line figures due to the economic circumstances and other difficulties. Example B refers to a company employing in excess of one hundred full-time staff. Tourism is also presently attempting to come to terms with sectoral issues of its own.
The decision on the 0.50c tax on bed-nights is to stand and it is yet unsure as to how this measure is to be implemented. Further assessment is needed on the added administration cost this would bring about and the amount of potential business that could be lost due to price sensitivities. Hotels that cater predominantly for the British market already face high currency risk due to the fluctuations of the sterling against the value of the euro. The coming months are critical to this industry that has endured a difficult year with substantial decreases in rates in an effort to retain as much volume as possible.
The manufacturing example is typical of the situation being faced by other manufacturers. COLA will certainly not help make Maltese manufacturing become more competitive. It is true that many manufacturers received valuable support through Malta Enterprise, but COLA and the revised utility rates are perceived as measures that cancel out previous benefits. The manufacturing industry is particularly concerned about the COLA measure being implemented on its own, and without any labour market flexibility measure to offset the effect and rendering it more justifiable from a performance/productivity point of view.
Prior to the Budget, the Malta Chamber made it amply clear that it was not against the award of COLA. But given the business and economic circumstances, the Chamber is definitely disappointed that an unprecedented COLA was awarded without accompanying mitigating measures. The Chamber continues to believe that certain labour market flexibility and other measures would have gone a long way to compensate for the adverse effect on cost. It augurs that the social partners can, in time, come to an agreement on this.
Employers were also particularly upset by the fact that a large portion of Maltese employees generally refer to COLA as the "government increase" band actually think that it is paid for by the Government.
They therefore do not recognise the inherent threat it exerts on their jobs. The Malta Chamber calls on the local media to assist in correcting this dangerous misconception.
Going forward, the Malta Chamber believes that the social partners must resume early talks on COLA and the labour market in its entirety. The country must approach the situation in a holistic manner.
It must ensure that sensitive matters are dealt with well in advance of the next pre-budget consultation discussions.
This is required to ensure that decisions are professionally researched and planned to the benefit of the country's competitiveness and future wealth and employment generation prospects.
The author is president of the Chamber of Commerce, Industry and Enterprise.