CHARLOT ZAHRA spoke to GWU Secretary-General Tony Zarb, UHM Secretary-General Gejtu Vella, MEA Director-General Joseph Farrugia, GRTU Director-General Vincent Farrugia and MHRA Chief Executive Officer George Schembri whether the €6.06 COLA increase was justified in view of the current economic crisis facing the country and the high inflation rate and its impact on Maltese employers, among others
Joe Farrugia, MEA Director-General: “Wage increases should be linked to productivity, not inflation”
What is the MEA’s reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?
MEA has made it known that it is not in favour of the COLA mechanism as wage increases should be linked to productivity, not inflation.
Giving COLA increase across the board in the current economic conditions threatens numerous jobs, and poses the danger of slowing down economic recovery.
In the Association’s view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession? Why?
The COLA cannot be described as being excessive as it is an automatic mechanism which is directly linked to the RPI.
However it certainly unrealistic to expect businesses to increase their wage bill by €6.06 per week per employee in a time of economic recession, when businesses are expected to remain competitive in a more aggressive international scenario.
How do you think that the COLA increase will affect Maltese employers during 2010?
Has the MEA made an analysis of how the proposed COLA increase will affect its members in various economic sectors of the country?
I believe that the findings of the survey that we carried out among our members provide a clear picture of the situation.
Many employers gave a clear message that they will consider declaring redundancies if they have to bear the full brunt of COLA in 2010.
This message is even more forceful if one considers that the COLA for 2010, at €6.06, is the highest it has ever been, and that this is partly due to the inflationary impact of Government’s decisions on energy tariffs.
The COLA increases should not be seen in isolation. In a time of shrinking domestic and global demand, Maltese businesses have been faced with rising costs of production because of higher utility bills, and other government induced costs.
Which are those sectors that will be most hit hard by the COLA increase?
The main victims will be the sectors which have a low value-added and firms which are essentially price takers and cannot pass on increased costs to their customers.
Therefore many manufacturing companies and firms operating in the tourism sector are bound to be affected negatively. Also at risk are companies providing outsourced services, such as security companies, and cleaning service companies.
How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?
One can never quantify exactly the impact of the COLA increase on employment.
What is certain is that in the current economic climate, granting a COLA of €6.06 presents a clear threat to thousands of jobs in Malta and Gozo.
This is a risk that should be avoided through targeted and timely fiscal intervention.
George Schembri, MHRA Director-General “Tourism cannot sustain such an increase at a time when operating profitability is down to 2001 levels”
What is the MHRA’s reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?
Whilst the MHRA has no doubt that the figure of €6.06 is correct according to the formulae used to establish the COLA at the present inflation rate, the tourism sector cannot sustain such an increase at a time when operating profitability is down to 2001 levels and establishments are burdened with heavy operational costs.
The current levels of operating profitability are making it very difficult for many hotels to meet their financial cost obligations and an increase of this level on their highest operating cost is just going to make things all the more difficult.
In the Association’s view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession? Why?
The proposed COLA is not sustainable for the reason given above.
The reality is that hotels will have to make the saving by reducing the number of employees, so while the increase will help the employees who remain employed, it will also lead to a lower number of people being employed in the industry.
How do you think that the COLA increase will affect Maltese hoteliers and restaurateurs during 2010?
MHRA fears that the COLA will put further jobs at risk in hotels and restaurants at a time when more establishments are considering whether to remain open for winter.
This will definitely affect the bottom line for most since rates are what they are and very difficult to increase at a time when there is dwindling demand.
Do you think that Maltese and Gozitan entrepreneurs can sustain more burdens in view of the recession that has afflicted the country and the high inflation rate that has impinged negatively on production costs?
This increase is only one in a string of increases in costs. What is feared is that this is not the last increase the industry may see before the end of this year and murmurs are already being uttered about increases in utility costs.
The situation is not sustainable and MHRA fears that more hotels and restaurants will close down to mitigate losses.
Was the matter discussed in the MCESD prior to this announcement or not? If yes, could you kindly state exactly when those discussions took place?
The COLA was discussed within MCESD and a report was submitted to Government with other suggestions how the present economic downturn can be mitigated to help industries to lessen the impact of the present economic recession and loss in revenue, and the effect of increases such as the COLA, energy costs and others.
Has the MHRA made an analysis of how the proposed COLA increase will affect its members in various economic sectors of the country?
A survey was conducted a few weeks ago amongst our members and the impact of an increase between €5 to €7 in COLA would result in an increase of around 2.5 to 3 per cent increase in the annual wage figure of hotel and catering establishments including part-time work.
Most indicated that to make keep the cost of wages down they will have no option but to reduce further their staff compliment.
Ultimately the result of this increase is going to be a loss in jobs.
Which are those sectors that will be most hit hard by the COLA increased?
We can only reply for our sector, that is, hotels and restaurants and state once again that there will be job losses without a doubt.
How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?
We would not be at all surprised if the amount of job losses equate or even surpass the equivalent anticipated increase in cost.
Businesses have to make ends meet to remain afloat and the wage bill is the highest expense in any hotel or restaurant establishment.
Over the past year, many of our members have made sacrifices to minimise job losses but they will not be able to carry this for another year if things do not pick up very substantially.
Gejtu Vella, UHM Secretary-General: “The COLA mechanism has been in place for many years and has brought industrial stability in the country”
What is the UHM’s reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?
The €6.06 COLA increase that will be granted as from 1 January 2009 will compensate for the increases in the cost of living that there were in the past 12 months till September 2009.
This will compensate, particularly, for the increase in the utilities’ tariffs and their impact on other products and services which also saw price hikes during the year.
In the Union’s view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession? Why?
This is not an excessive increase; this is a realistic increase that results out of a tri-partite agreement that was made between the Government, the Unions and employers’ organisations.
The three parties have a pre-set agreement on how the cost of living allowance is granted, hence it’s no big surprise for all of us.
The COLA mechanism has been working there for many years now and has brought industrial stability in the country. The cost of living increase is not a wild guess; it’s a measured instrument, therefore there are no big surprises.
How do you think that the COLA increase will affect low and middle-wage earners during 2010?
If the consumer prices remain as stable during 2010, the COLA increases will reflect the prices that there will be. If the consumer prices continue to increase during 2010, in 2011 there will be another increase to make good for the increases sustained during 2010.
It is strange how prices are still increasing in Malta while the country is still in a recession.
Maybe instead of looking at the €6.06 increase, one should instead look at the regulators in this country. That’s why in this Budget, the UHM is calling on Government to give a critical look at the regulators.
It should change the Consumer and Competition Division into an Authority which is really effective and the consumer really feels protected.
Was the matter discussed in the MCESD prior to this announcement or not? If yes, could you kindly state exactly when those discussions took place?
The matter was not discussed in the MCESD. This matter is discussed by the RPI monitoring committee between the social partners, and the MCESD takes the workings of the RPI monitoring committee on board.
Has the UHM made an analysis of how the proposed COLA increase will affect employers in various economic sectors of the country?
All employers know about the arrangement that exists between the Unions, the Government and the employers on COLA and therefore they are aware that there is a high inflation rate, hence the COLA rate will be higher than usual.
In reality, the increase that was given last year and the previous year was higher than this year’s COLA increase.
How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?
I think that the Government’s strategy of identifying places of work where there are problems and taking immediate action not to lose jobs has worked effectively during the past few months.
If there are other companies that will be facing sustainability problems in the coming months, then the Government should continue doing the same.
Vince Farrugia, GRTU Director-General: “I believe that many of our members cannot afford COLA”
What is the GRTU’s reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?
There is a formula agreed by all social partners, GRTU being one of them, and that formula has to be respected. This year COLA has produced an increase for all employees (not consumers) of €6.06c per week.
We are not as happy with the formula as it no longer reflects the situation today, but unless an agreement is reached on a change, it has to be respected.
The reason why GRTU says this is that, while many employees is the public sector and in other private establishments benefit from an annual cost of living, as a result of their collective agreement, many other people work in establishments where workers are not unionised and not subject to a collective agreement.
Most times the only increase they enjoy is the COLA – it is also the only increase, and not even in full, that pensioners and others on social income receive as annual adjustment.
On the other hand households` take-home pay needs to be adjusted as otherwise not only do people suffer a consumption regress but retailers and service providers also feel this lack of disposable income adjustment in their sales. GRTU cannot therefore object to the full payment of COLA.
In the GRTU’s view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession? Why?
The increase is not a question of judgement. It is what the current inflation rate justifies, and it has to be paid. The question really is whether employers can afford it.
I believe that many of our members cannot, so the question really is how employers can be assisted to meet this necessary obligation.
We do not agree that Government should subsidise employers, as that would mean new tax revenue has to be obtained somehow. It often means that the middle income groups would have to fork out the money.
So at the end it would be simply robbing Jack (middle income groups) to pay Paul (lower income groups). This is not acceptable to GRTU.
How do you think that the COLA increase will affect small and medium-sized enterprises during 2010?
In the first instance they would see an increase in sales as households have that little extra income to spend.
Cost-wise however, it will effect them badly, especially if they are in a business where prices cannot be increased so easily or where incomes are subject to a fixed contract, which does not include a cost of living escalation clause.
Do you think that Maltese and Gozitan entrepreneurs can sustain more burdens in view of the recession that has afflicted the country and the high inflation rate that has impinged negatively on production costs?
The answer is of course not, but the issue is much bigger than COLA.
GRTU has just presented Government with a booklet of proposals that should be included in Budget 2010 as a bold approach to support enterprise.
The COLA negative impact can be mitigated if an agreement is reached with the Ministry of Finance to accept this year a discount on social contribution payment per worker equivalent to at least half the COLA payment per worker.
The amount would be made payable to Government over the next three years. Effectively Government would be lightening the burden on employers this year, as other burdens heavily impinge on employers, for it to be redeemed in the future when things should look better.
Was the matter discussed in the MCESD prior to this announcement or not? If yes, could you kindly state exactly when those discussions took place?
This issue was aired but no formal motion by members was ever presented, so no decision was taken.
For a decision to be taken there has to be a complete process of negotiations as happened when COLA was originally introduced.
Currently MCESD members are discussing a joint paper to be presented in connection with Budget 2010 and this paper may serve as a launching pad for eventual COLA restructure.
Has the GRTU made an analysis of how the proposed COLA increase will affect its members in various economic sector of the economy?
Yes. The sectors that are subject to a contract that guides their income and whose contract is not renewable every year, and other sectors in a highly-competitive market where the pressure at the moment is for the reduction of prices to sustain market share.
During the current economic slowdown, many firms are not in a position to put up prices to cover costs. Only firms in a monopolistic situation can simply pass on the extra cost.
We will however in the next few months see price increases as firms adjust to cover the extra costs.
Which are those sectors that will be most hit hard by the COLA increase?
The firms especially in export trade and in tourism, whose market is an international one, where competition is very tight and in view of the economic slowdown internationally, will have to reduce prices to continue to compete, especially those firms with markets outside the Euro Zone, and who therefore have the double negative stroke of increases in costs in Malta, due to COLA among others, and are also suffering increased prices due to a hardening Euro exchange rate.
How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?
I do not believe that COLA by itself will have a determinate employment impact. Employment will be effected if Government fails to come forward with a bold enterprise-driven budget for 2010.
GRTU has made a series of proposals for Government to sustain enterprise and we are confident that Government will not fail to be bold in its enterprise-support initiatives.
The problem is not one of COLA alone but more a question of the need for Maltese enterprise to be sustained to meet current cash flow problems and for enterprise to have enough funds to restructure and innovate.
I do not think it is fair to identify COLA as a main problem in itself. The problem is bigger than COLA.
Tony Zarb, GWU Secretary-General: “COLA is justified as it reflects the loss in purchasing power. On the other hand, the GWU is concerned about the effects this would have on the country’s competitiveness”
What is the GWU’s reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?
The COLA adjustment for 2009 is justified as it compensates for the increase in the cost of living during the year. This is mainly due to energy tariffs and rising food and medicine prices.
One has to keep in mind that the present system compensates cost of living increases after one calendar year.
In the Union’s view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession? Why?
In the Union’s view, the COLA adjustment is justified as it reflects the loss in purchasing power. On the other hand, the GWU is concerned about the effects this would have on the country’s competitiveness particularly in the tourism and manufacturing sectors.
This is why the GWU championed together with ten other unions and fought the issue of the rising of utility prices, as from the outset we forecasted the negative impact this would have on the rate of inflation and on our competitiveness.
How do you think that the COLA increase will affect low and middle-wage earners during 2010?
It will surely alleviate a bit the situation of low and middle-wage earners families.
However, unfortunately much of the COLA increase most probably will go in paying for the high utility bills and the drastic increase in gas, medicines and food prices.
Do you think that Maltese and Gozitan employees can sustain more burdens in view of the recession that has afflicted the country and the high inflation rate that has impinged negatively on production costs?
Certainly not. If the Government continues to burden low and middle wage- earners with more taxes and/or tariffs, this will surely lead to more people falling below the poverty line in our country, while others will continue to experience a decrease in their standard of living.
Was the matter discussed in the MCESD prior to this announcement or not? If yes, could you kindly state exactly when those discussions took place?
No.
Has the GWU made an analysis of how the proposed COLA increase will affect employers in various economic sectors of the country?
We expected the government to conduct a social-economic impact assessment on all measures being contemplated in the document currently being discussed at MCESD level.
Which are those sectors that will be most hit hard by the COLA increased?
There sectors in the economy who will not be affected negatively by this COLA increase.
In those areas where there will be problems, the Union is prepared to discuss at enterprise level with management concerned and the government.
How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?
If the Government reacts in the way it did to assists those companies who fell on a four-day week as a result of the recession, then there should be no job losses.
