Budget 2024: What to expect beyond COLA

The cost of living has increased drastically in the last couple of years, leaving Maltese citizens struggling to make ends meet. Each year, an increase in the weekly salary of all employees is announced during the Budget, referred to as the Cost of Living Adjustment (COLA) mechanism.

In 2024, this is expected to be around €13 per week, 30 per cent over the €9.90 given in 2023. To put this into perspective, the total increase of COLA given between 2018 and 2022 was that of €13.07. Yes, that means that, in one year, we have seen increased costs that usually would be observed across five years.

The COLA measure is insufficient to keep local families thriving. There are two major faults with this measure.

The simplest one is that the adjustment comes in a little too late. The fact that, in December of 2023, employees are earning the same amount they did in January means they had to endure months of increasing expenses without additional compensation.

The second downfall is that the COLA is treated as a sole solution and a sizeable portion of this salary increase goes to the government pockets through increased taxation. It’s important to note that the threshold for income taxes has not been updated since 2016.

For the past eight years, the first €9,100 of annual income for single people has been non-taxable. You don’t need to take an economics class to know that the value of €9,100 has greatly depreciated since then. Based solely on the cost-of-living increases, the non-taxable threshold should increase to €11,000, along with other tax bands shifting in similar proportions.

Furthermore, the qualifications for overtime taxation have not been adjusted since their introduction in 2020. Employees who earn more than €375 basic wage per week lose access to this benefit.

I was greatly disappointed that, last year, this was not revisited after the significant COLA. To put things in perspective, when totalling COLA from 2021 to the expected rate of 2024, the cap needs to be raised to at least €400 basic pay per week. It would be sensible that such measures be revised annually along with COLA.

If tax rates are not revisited, an employee who earns a basic salary of €362.50 per week in 2023 and works an average of one hour overtime per week will see their employer pay them approximately €701.35 extra in 2024. However, the worker will receive only an additional €297.75 in their pocket, with over 57% of the increase going back to the government.

This proportion increases with more overtime and can be detrimental. If an employee with this wage works an average of eight hours of overtime per week, their net amount in 2024 would be €62.80 less than in 2023.

The COLA measure is insufficient to keep local families thriving- Jeremy Mifsud

How is it mathematically feasible for someone to work the same amount, with a higher salary, and earn less than the previous year? This flaw in the formulae and COLA mechanism is not new as employees in 2023 in similar conditions would receive less money than in 2022 for the same work.

Beyond the flawed proportions of COLA going back to government pockets, employers also have to fork an estimated €73.46 per full-time employee in social security and work-life balance contributions.

For those unfamiliar with the work-life balance fund contribution, this is because it has been known as the maternity fund contribution until this year. This has been the main fund used to pay out employees’ maternity leave.

Since late 2022, this fund started to be utilised for paternity and parental leave and hence it has been rebranded to the work-life balance contribution. To match the increased expenditure in family-friendly measures, it would not be surprising if the government justified an increase in the work-life balance contribution. That said, a significant amount of this fund remains uncollected due to the lack of validation implemented during end of year submissions.

Despite COLA’s portrayal where the government is seen to be giving this bonus, the government is the main beneficiary. This burden to businesses will continue to see them raise prices to mitigate increased costs. And, in the end, who suffers? The hard working people whose newly adjusted salary is outdated in a couple of months as soon as prices inflate.

It is clear that the COLA mechanism requires a heavy revision. In the short term, we’d expect the government to revisit the tax bands and tax benefits to reflect today’s reality.

Jeremy Mifsud

Moreover, the government needs to utilise a portion of the increased revenue to assist employers in paying inflated wages. Without these necessary changes, the economy will continue to spiral out of the government’s incompetent hands.

Jeremy Mifsud is the Head of Customer Success at Buddy, an HR and Payroll software. They embody a people-first approach and advocate strongly for employee rights.