Editorial | Industrial peace and tough reality

At a time of international turmoil and economic uncertainty, maintaining industrial peace is not a luxury but a necessity.

This is why government’s unequivocal statement confirming that the cost of living adjustment (COLA) mechanism will not change is welcome news.

The COLA mechanism was agreed by unions, employers and government at the start of the 1990s and is intended to ensure wages are not eroded by inflation.

The formula is based on the Retail Price Index and the statutory wage increase is normally announced in the budget and implemented from the following January.

The manner by which inflation has been shooting up over the past year indicates that the COLA could be around €10 per week, the highest it has ever been in decades.

Employer organisations fearing an erosion of competitiveness as a result of the higher COLA, have put pressure on the government to change the mechanism’s workings.

The Chamber of Commerce has suggested a reduced COLA payment to employees who took a pay rise this year, effectively suggesting a change in the mechanism. The chamber also warned that a hefty COLA increase across the board will further push up inflation next year.

However, the Chamber’s proposal was criticised by the General Workers’ Union that warned it will not allow unilateral changes to the COLA mechanism.

The threat of industrial turmoil risks destabilising an already fragile economic recovery and so government did well to shut down the argument. If any changes to COLA are to be effected, these must be done in consultation with all parties.

The COLA mechanism has served the country well and upending the prevailing industrial peace will only cause more uncertainty.

It is true that the weekly wage increase can erode competitiveness in some sectors but it is also a fact that Maltese businesses and households are being shielded from higher electricity and fuel prices.

The hefty public subsidies to keep energy and fuel prices stable allows Maltese companies to have a competitive edge over their European counterparts. This must not be underestimated.

However, even within this context government must ditch the mantra that it’s business as usual. Subsidising energy and fuel is an expensive solution, especially with no end in sight for the war in Ukraine.

At some point, Clyde Caruana will be forced to curb public spending to ensure the deficit does not run away.

Indeed, government is already conducting a spending review with reports suggesting that Caruana asked ministers to find €200 million in expenditure cuts this year.

It helps if government embarks on a campaign to encourage people to scale down electricity consumption and fuel use. People should be encouraged to used public transport and shared taxis instead of their private car wherever possible and energy-saving measures must be adopted. Caruana may also ask that the burden of higher fuel prices be shared by motorists through a staggered increase.

Additionally, certain electoral pledges that require massive outlays could be delayed to redirect expenditure where it is more necessary within the circumstances.

These measures will lull the country out of its false sense of security because there is another reality, which the headline statistics for inflation do not show.

Malta’s overall inflation rate remains the lowest across the EU. But if energy is excluded from the equation, the underlying numbers show that food and services inflation in Malta is rising faster than that in other European countries.

This is a phenomenon that government must not ignore when outlining its economic vision in the coming budget.

While the COLA increase will help mitigate some of the impact of higher prices on families, measures are needed to mitigate the costs of logistics and shipping that businesses face.

Navigating these waters will not be easy. Government must redirect expenditure to sustain those on low incomes and curb unnecessary public employment. Consumers must use their spending power judiciously by shopping around for the best prices. Businesses must curb greed. And everyone has to wake up to the reality that lifestyles may have to change as a result of prevailing global conditions.