21 June 2006

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Business Today

Lack of leadership

The decision delivered by the International Labour Organisation (ILO) last week is not only a moral blow to government but a sign of the lack of leadership that characterised the whole debate in 2004 and 2005 over the establishment of a social pact.
Government had been warned by various exponents at the time that the road it intended taking over the public holidays issue was a legal minefield. Former finance minister John Dalli had gone as far as saying that government should have simply reduced the number of public holidays rather than enter into a complicated arrangement that had the unions arguing their case legally and in a forceful manner. Dalli was not alone in arguing the way he did.
Government simply ignored the warnings and today it has to face the music of an ill thought out decision. It transpires government was ill advised by its advisors or consultants.
The ILO’s ruling could have served as a basis for government to review the decision taken last year and come up with a more effective measure. Unfortunately, the proposal put forward yesterday fails to satisfy the business community and could create friction among different classes of employees.
While government was correct to take heed of the ILO ruling, even if the international body’s decision is not enforceable by law, the decision announced yesterday simply weakens the effectiveness of the original measure.
Competitiveness is a major concern to the business community, government and the country at large.
The public holidays decision was intended to boost productivity and hopefully make Malta more competitive. Even though the impact of the measure has not been quantified by government, industrialists argue that it has had a marginal positive impact, although on its own it is not enough.
Government’s new proposal risks creating two classes of employees; those covered by a collective agreement and those who are not.
What is now being proposed simply means that all those who are covered by a collective agreement will continue to benefit from an additional day of leave for public holidays that fall on a weekend, hence losing the impact on competitiveness, unlike those who are not covered by a collective agreement, who will have to shoulder the sacrifice demanded of employees last year.
It is an unfortunate situation, which government could have avoided had it moved along a more sensible road.
When the social pact failed to materialise in 2005, government still went ahead with the public holidays measure irrespective of the opposition by the unions. Given its resolve at the time to legislate as it did, government would have done well to legislate in a way that did not put it in a fix.
Had it shown leadership, government could have gone ahead with a three-year plan to boost competitiveness by temporarily removing three public holidays from the calendar and giving the annual cost of living increase in the form of an annual tax-free bonus rather than a statutory increase in wages. These two decisions alone did not require a social pact to implement.
The former would have been a legally hassle-free way of boosting productiveness and the latter was a measure to which unions were broadly in agreement with during the discussions on the social pact.
Both measures would have been more than welcome by the business community. Coupled with other reforms and commitments on its part to relieve the tax burden, the country would have had a three-year period to recuperate some lost ground with an option to discuss a renewed social pact at the end of the period.
Economically it is not too late to go down the road of meaningful change but government has a bigger problem at hand because socially people have had enough of sacrifices that do not seem to lead anywhere. Statistics showing an economic turnaround have no impact on the psyche of a country suffering from fatigue.
It is this sense of despondency that needs to be addressed urgently and the fumbled decision on public holidays does little to reassure people that the country is in good hands.
Government should not be too surprised that despite GDP statistics showing economic growth, the vast majority of people and businesses are not feeling the benefits.
Super profits by a few big companies operating for the domestic market go a long way in boosting the GDP but they are a very poor reflection of what wealth is actually ending in people’s pockets.
By simply focussing on GDP and ignoring the lack of disposable income in the hands of the general public, government, just like it did when it forged ahead with the public holidays measure last year, is simply burying its head in the sand once again.

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