Fast rising inflation is undoubtedly the most severe economic challenge facing most businesses and households right now. Rising prices often fuel demands for higher wages. Higher wages, in turn, push prices even higher. The onset of a price-wage spiral destroys lifestyle and economic stability.
The cost-of-living adjustment mechanism (COLA) is the government’s tool to compensate workers for rising living costs. It has served its purpose and avoided industrial strife for many years as workers and pensioners know that their income would be adjusted yearly to reflect price increases in the previous year.
COLA is long overdue for a re-engineering process to ensure that it remains relevant by protecting lower-income households while not burdening businesses with additional expenses that do not target the promotion of more fairness in our society.
Last year, Finance Minister Clyde Caruana argued that Malta needs to move to a new mechanism where the government helps those with low income affected by particular circumstances which push up prices. While workers on low income and pensioners will continue to need the support of the state to protect themselves from the effect of high inflation on their standard of living, those on higher income do not need COLA to defend their interests.
Last week, the Malta Chamber of Commerce issued a statement insisting employers should not have to pay the full cost-of-living adjustment for workers whose salaries went up this year. Instead, the chamber argued, workers who have received some form of pay rise should only receive the difference between that increase and the 2022 COLA.
It is about time the one-size-fits-all COLA mechanism is replaced by a more socially fair system. Caruana was right when he argued last year that: “The compensation given by the government should be addressed to those who have the lowest income.”
The revision of COLA should also aim to introduce mechanisms that are relatively easy to implement and clear enough for all pensioners, workers and employers to understand.
The chamber’s recommendation on COLA should be seen in the broader context of fiscal management. The subsidies given by the government to cushion the effect on energy and fuel prices have helped many households and businesses to cope with the sharp rise in inflation. They have also kept the demand for wage increases by trade unions in check, thereby preventing a dangerous price-wage spiral. But it would be naïve to expect these subsidies to have no capping on amount and duration.
The waste of taxpayers’ money in implementing various public projects is well documented. If the government wants to win taxpayers’ trust, it needs to show that it can fine-tune the payment of social benefits judiciously. But it must also show determination in curbing the waste of taxpayers’ money caused by the mismanagement of public funds.
When public funds are mismanaged, the people who suffer most are those with limited income, as they often have little bargaining power. So besides the COLA re-engineering, one looks forward to more emphasis being placed in the next budget on helping the working poor, those often forced to accept precarious working conditions in return for measly pay. Despite Malta’s prodigious economic growth, the population classed as ‘at risk of poverty’ and ‘materially deprived’ has not shrunk in the least over the last decade or so.
Employers, too, need to do their part. The effect of high inflation on lower-income workers can never be offset adequately simply through COLA adjustments. More progressive and socially committed employers must support their low-income workers when high inflation threatens their dignity.