Interview | Wednesday, 09 September 2009

Adjusting the COLA predicament

Concerned about a possible hefty increase in payroll costs after this year’s budget, MEA Director-General Joe Farrugia speaks to KARL STAGNO-NAVARRA about the options at hand

74 per cent of businesses are not in a position to absorb a Cost of Living Adjustment (COLA) increase of between €5 and €7 per week for 2010, according to a survey conducted by the Malta Employers’ Association among its members. 20 per cent of respondents said their company would manage a COLA increase by reducing the labour force and cutting overtime, while another 25 per cent said they would increase their prices to customers. One-third of those surveyed said they would improve efficiency as a result of a COLA increase. But as Finance Minister Tonio Fenech said, a €5 to €6 COLA increase will most likely be announced in the next budget. Meanwhile, MEA is cautiously calculating its proposals to government.

Government has not reacted to MEA’s COLA survey. Does this put you on a confrontation path with government?
The fact that government has not replied positively to our recommendation does not put us on a confrontation path. In the coming weeks, MEA will work hard, as an association and also through its input at MCESD, to convince government that our proposal is in the best national interest, and that, given the current circumstances, it will work in the interest of all social partners.

What are the implications for businesses should government go for a budget and announce the €5 to €6 per week COLA compensation to employees?
I think the implications are evident from the findings of the survey. There are many employers who have been postponing redundancies, and unless a corrective measure is taken to minimise the harmful impact of the COLA mechanism on the level of employment, we risk having a surge in unemployment in the coming months. This is a situation that we want to avoid at all costs. If government is also working to keep people in employment, then we should work together to achieve this primary objective.
As mentioned in our report, the coming months are critical and will determine whether or when Malta will emerge from the international recession.
A rise in unemployment will possibly drag the recession in Malta until 2011, which is when many major economies will be expected to be on the path to recovery.
It would be tragic if Malta lags behind the global recovery because of its inaction.
As things stand, there are clearly some businesses (definitely not all) who will probably discharge employees if there is a COLA of between 5 and 6 Euros per week.

How should trade unions interpret the situation?
If the employees obtain part of the COLA increase as a bonus for 2010, their income will not be affected. Therefore I do not see how this should be an issue for the unions.
We are also recommending that should real GDP growth be positive during the second and third quarters of 2010, which will probably be the case, the amount given as a bonus will be added to the COLA for 2011.
In this way, employees’ earnings will not be affected at all. We are stressing that this is a short term measure that will give a slight breather to employers during 2010, which as explained earlier is a critical time for businesses.

What will be the MEA’s position at MCESD?
MEA will work hard to convince the social partners, like other employer bodies, unions and government - to adopt its recommendation as part of the measures to be included in the national budget for 2010. Of course, we are also open to look into constructive proposals that may originate from other organisations.
How critical is the situation for businesses?
As I already told you, there are many employers who have been postponing redundancies, and unless a corrective measure is taken there is the real risk of a surge in unemployment in the coming months.

Further announced increases in fuel prices have continued to put a burden on businesses, what impact does this also have on COLA?
It is a fact that the relatively high inflation during the past 12 months has partially been the result of the increase in utility rates that were imposed on businesses.
Employers have been hit both ways, albeit through an increase in their operating costs as a result of higher utility rates, as well as a result of a higher COLA adjustment due to inflationary pressures.
This is obviously affecting the competitive situation of many businesses in Malta, particularly those that are labour intensive and in a price taking position.

What is MEA’s appeal to government?
Our appeal to government is not to dismiss any ideas at this stage. It needs to approach the situation with an open mind to increase our chances of steering the economy back towards a growth path in 2010.”



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09 September 2009


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