The Malta Chamber has proposed removing taxes from the cost-of-living adjustment (COLA) and putting an end to half days during summer for government workers.

They are among 250 proposals outlined in a document published on Tuesday ahead of Budget 2024, which will be presented on October 30.

It said that with COLA set to rise by a staggering €13 per week, it is imperative to find ways of improving the purchasing power of lower-income groups while also minimising increases in labour costs. 

“We understand that COLA needs to happen but we want the fees that are paid by businesses to be used by the receiver,” Chamber CEO Marthese Portelli said while presenting the proposals. 

“So it is a matter of either revising tax bands so that the additional COLA income is not being caught up in another tax bracket, or otherwise we can simply not tax COLA,” she said. 

COLA is paid by employers as part of their salary and is calculated every year on a fixed formula based on the cost of a basket of products and the minimum wage.

With inflation likely to remain significantly higher than the 2% target, Malta’s exports, including tourism, manufacturing and financial services are going to remain less competitive, the Chamber said. In turn, the lower economic growth and higher wage costs will put a squeeze on business margins. 

They proposed that the government correct the anomaly in tax progression that was introduced when tax bands were tapered with the introduction of the second 25% tax band with a lower subtracted amount in the tax calculation which has the effect of a very high marginal tax rate on pay rises that shift employees from the first to the second 25% tax bracket.

Planned tax refunds by cheque should be incorporated into the revised tax bands to eliminate the administrative burden and improve people’s take-home pay, they added. 

In May, Opposition Leader Bernard Grech similarly proposed that the government absorb COLA increases, a proposal which was backed by local employers’ associations. 

'Businesses do not operate on half days'

The Chamber also proposed gradually phasing out the practice of government departments only working half days during the summer, starting with Customs. 

“Businesses do not operate on half days during the summer, so how can they be properly served by government departments that do?” Portelli said. 

The Chamber also proposed that an independent audit of all the roles and responsibilities of all those working in the public sector be carried out in order to identify duplication and waste.

This, Portelli said, includes government contracts in which employees are supplied to the government by third-party companies but do not appear to be listed as public servants as their employment would be categorized in a service agreement. 

“As we know, finding people is one of the biggest challenges that businesses face, so any staff that is not needed within the ever-growing public sector should be made available to the private sector,” Portelli said. 

The Chamber said the country must take bold and perhaps unpopular decisions that focus on shifting our current economic model and transforming it into a well-being economy.

This, they said, must be achieved by tackling the most pressing issues without delay, which they identified as:

  • traffic congestion,
  • the utility network,
  • upkeep of public areas,
  • the proper enforcement of laws,
  • assistance for low-income earners,
  • economically viable subsidies and
  • incentives to shift employment opportunities away from labour-intensive activity.

When it comes to the country’s energy sector, the Chamber said that it is concerned about the ageing infrastructure of the energy distribution system while also highlighting that there is a lack of awareness about the true cost of the energy crisis and climate change that is impacting consumer behaviour. 

Reduce energy subsidies

They proposed that the government gradually reduce energy subsidies and give a six-month notice period for each reduction while focusing on education about energy frugality and sufficiency. 

“The Malta Chamber acknowledges that the government has protected businesses and consumers from the repercussions of escalating energy costs through heavily subsidised electricity tariffs and water rates,” they said.

“However, providing subsidies without discernment between those genuinely in need and those financially stable is untenable. Such subsidies promote inefficient energy consumption at unrealistically low prices and hinder the allocation of financial assistance to those struggling to afford necessities.”

Units that are over and above the eco-reduction entitlement should also not be subsidised, they said.

They called for substantially larger investments in the distribution networks, a long-term energy resilience plan as well as discussions about liberalising the energy market to take place. 

Portelli said that liberalisation of the energy market does not mean privatisation, but ending the current monopoly and allowing both consumers and businesses to choose their preferred energy provider. This would likely better services and increase competition, she said.

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