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Cost of living and competitiveness - Michael Briguglio

At this time of the year the Budget Office within the Ministry of Finance would be working on the upcoming national budget. If one momentarily puts the sale of passports on the side, one should acknowledge that it is no easy task to balance the books while accounting for government’s priorities and various social, economic and environmental needs.

During the process, the social partners within the Malta Council for Economic and Social Development meet to discuss their expectations for the Budget in question. Again, there may be different legitimate requests which sometimes may not be easy to reconcile. Some social partners emphasise competitiveness, others emphasise their members’ purchasing power, and yet others refer to different sectoral needs.

I hope that in the upcoming Budget the government gives more importance to persons at risk of poverty or who are experiencing severe deprivation.  According to the National Statistics Office (NSO), the number of persons living in households with an income below the at-risk-of-poverty line (€8,698) as at 2016 was 72,143, or 16.8 per cent, 0.3 percentage points higher than that recorded for the previous year.

Besides, in 2017, the severe material deprivation rate among persons living in households was 3.3 per cent, a decrease of 1.1 per cent from the previous year. One should also refer to a recent European Commission study which stated that elderly pensions in Malta are not adequate.

Sure, the government did include some commendable reforms to help move people out of poverty. These include the tapering of benefits, welfare to work schemes, family-friendly measures such as childcare centres and other schemes.

But the fact remains that low-income earners and pensioners are experiencing too many burdens. This includes increased costs for rent, food stuffs, fuel, utility bills and other items, which are reflected in Malta’s relatively high inflation rate of around two per cent.

It is about time to review the mechanism that calculates COLA

Last year’s Budget awarded a cost of living increase (COLA) to workers or €1.75. Any consumer would agree that this did not suffice to cater for the actual cost of living increases. The fact that the government itself awarded an extra supplement to workers was in itself an admission that the COLA increase was not realistic.

I endorse the claim by workers’ unions that it is about time to review the mechanism that calculates COLA. The mechanism has not changed in years and  consequently it seems to be out of touch with reality.

True, COLA was the result of a historic agreement between the government and respective employers’ and workers’ unions, and I agree that it is difficult to envisage an alternative mechanism that enjoys such a broad consensus. But this should not prohibit the government from looking into methods which can tweak the mechanism to make it more realistic while not hindering Malta’s competitiveness.

Other queries being made on Malta’s increase in prices should also be taken seriously by the government. For example, how much profits is the Enemed monopoly making? And how are they being used?

As regards Malta’s competitiveness, it is pertinent to look at a series of indicators and other evidence during the budget process. One such indicator is Malta’s trade deficit. The NSO recently quantified Malta’s as amounting to €242.6 million in May 2018, compared to a trade deficit of €441.2 million in the corresponding month of 2017. Both imports and exports decreased by €271.9 million and €73.3 million respectively.

Though Malta’s trade deficit has improved during the 12 months in question, the existence of such as deficit in itself is no news, and the demise of manufacturing helped result in a wider gap over the years. But does manufacturing have a future in Malta? Most likely it will keep experiencing major challenges, but it can also adopt strategies such as what my father Lino Briguglio refers to as ‘vertical specialisation’, whereby the Maltese firm would specialise in a particular stage of production which is knowledge-based and therefore generate a very high degree of value-added per person employed.

Such economic strategy requires effective investment in research, education, training, retraining and upskilling of workers. Given Malta’s relatively low performance in this regard, I augur that the government gives more importance to respective investment in the upcoming budget.

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