The government needs to take measures to rationalise its workforce, give fiscal incentives for people to work beyond pensionable age, and tackle the population crisis, the Employers' Association says in Budget 2024 proposals issued on Monday.

The Budget is expected to be presented by the finance minister next month. 

The association said that while the influx of foreign workers into Malta is partly due to demographic trends, a good part is also a direct result of squandering and misallocation of human resources.

It therefore called for a rationalisation of the public sector after a skills audit.

"The public sector requires a re-thinking to utilise its human resources in a manner that channels people where there is increasing demand for services – e.g. health – and a reduction in manpower where there are wasteful practices. In Gozo, the labour resource has been depleted due to unproductive employment in the public sector. The Community Work Scheme should be discontinued and employees channelled into productive work in the private sector," it said.

Address the issue of young people going to work abroad

Furthermore, the association said, Malta cannot afford to have a ‘leaking bucket’ labour force, with Maltese employees leaving the country to be replaced with foreign labour. 

Efforts to generate the required skills in the labour force therefore needed to be intensified while measures that lead to a contraction in the supply of labour hours needed to be avoided.

The association pointed out that the addition of public holidays falling on weekends has resulted in an average reduction of 650,000 working days per year – the equivalent of more than 3,000 full-time employees which, given the shortage of manpower, have to be imported.   

Provide incentives to work beyond pensionable age

The MEA would also like the government to encourage the elderly to remain in the labour force on a voluntary basis.

"Currently there is a waste of labour as thousands of persons reach retirement age stop working because they forfeit their pension, or because of the tax disincentive," it said.

It therefore recommended that persons who reach the age of 61 and have sufficient social security contributions should be entitled to 50% of their pension if they continue working till the retirement age of 65 years.

Persons who opt to work beyond the retirement age should have their pensions tax-exempt.

"Although prima facie this appears to be a cost to the government, in reality the added output, and the tax revenue generated, will compensate for the tax deductions," the association said.

"Given that Malta has an ageing labour force, these measures are necessary and will reduce dependency on foreign labour. Such measures will also provide options for employees to manage their retirement and also reduce the risks of poverty for this age group.  

€13 per week COLA unprecedented, will severely impact businesses

On the Cost of Living Adjustment (COLA), the association said the government needed to ensure that COLA was awarded net of (tax) deductions.

"If employers are obliged, through this mechanism to compensate employees for inflation, then such compensation has to be passed on entirely to the employee," it said, adding that tax bands should be adjusted accordingly.

"The projected increase of €13 per week (in the forthcoming Budget) is unprecedented and will severely impact some businesses," it warned. It therefore proposed that €3 of the COLA for 2024 could be covered through tax deductions. Low-income earners who do not reach the taxable threshold can be awarded a cash handout which would be incorporated in the basic wage in 2025.

In other proposals for the Budget, the MEA proposed:

• A thorough review of government expenditure to reduce the national debt. 

• A focus on transparency and disclosure of government expenditure items.

• Shifting construction activities towards strengthening infrastructure

• Setting up a task force to look into Malta’s demographic challenges 

Read the MEA's Budget proposals in full by clicking on the pdf link above.