Tug of war over cost of living

As budget day looms, trade unions and employers appear united on the need for tax relief but are set for a major clash over the cost-of-living adjustment.

The social partners have called on the government to use Monday's budget to put money in people's pockets amid claims that the steep fuel surcharge announced this week had shifted the budget's goal posts.

The Malta Council for Economic and Social Development has been summoned for a meeting with Parliamentary Secretary Tonio Fenech this morning and one of the tough measures on the agenda is the decision to factor in the impact of the new power surcharge in January's retail price index.

Unions have remained tongue-tied over their requests, though sources told The Times they are demanding between 50c and Lm1 a week to make up for the increase in fuel prices and for the surcharge. This will be in addition to the Lm1.75 a week the RPI committee is expected to recommend.

When contacted, Chamber of Commerce president Louis Apap Bologna accused the government of setting a dangerous precedent by announcing that the private sector will have to pay an extra cost-of-living adjustment. Besides, it would be counter productive to Malta's competitiveness, Mr Apap Bologna warned.

Not all workers pay electricity bills. Indeed, in a typical household there could be many working people and the burden of the water and electricity bill was borne only once, he argued.

"The private sector has endured a heavy blow with the announced increases and cannot afford to turn the other cheek to receive another."

He said more plausible alternatives would be tax relief to alleviate the burden or a system of credits directly related to the electricity bill in order to ensure that compensation is only paid where due.

Mr Apap Bologna said his organisation was expecting the government to remain true to its word that there will be no additional tax burdens. The General Workers' Union's general secretary, Tony Zarb, said it was high time for the government to revise the income tax bands.

"We are expecting both tax relief and compensation for the tough measures introduced this week. And we are certainly not going to accept any more tax hikes," he said.

Both Mr Zarb and his counterpart at the Union Haddiema Maghqudin, Gejtu Vella, would not, however, be drawn into saying how much they were hoping to draw out of employers to make up for the utility hikes.

Mr Vella said the present tug of war between employers and workers could have been avoided had the social partners agreed on a social pact.

He underlined the need for the budget to boost the economy, especially at a time when the economic and social situation was strained.

The Malta Employers Association's director general, Joe Farrugia, recognised that the oil issue was an external problem but said it was high time for a strategy, not just short-term fixes.

However, he warned against "fictitious" growth by simply revising tax bands. "I think we should stop making categorical statements and instead draw up clear objectives in order to stimulate productive employment."

He lamented that employers had suddenly been left with a recipe of steep energy prices, cost-of-living allowances and compensation for the new surcharge.

The private sector was being burdened with everything, leaving companies with no choice but to revise budgets.

He criticised the yearly cost-of-living allowance saying it did not make sense to increase wages without a corresponding increase in productivity. "I hope we're not in for a shock on Monday," he said.

The director general at the Federation of Industry, Wilfred Kenely, echoed these concerns. "Malta is one of the few countries where the increase in labour costs was not matched by increases in productivity. Factoring in the utility hikes into the RPI will only deal a major blow to several companies and could prove to be the straw that breaks the camel's back," he warned.

On the other hand, revising income tax brackets could give more incentive to workers and employers. The government, he said, needed to create a climate that made for more disposable income and reducing taxation would be a bold move. However, the state had an obligation to collect all the due taxes.

"We need to contain the crisis but we need to have the courage to turn the wheel as well."

The Chamber of Small and Medium Sized Enterprise, the GRTU, insisted on the need to provide tax relief. "If the taxation threshold isn't increased, employers are going to have to fork out the extra cash," the GRTU's director general, Vince Farrugia, argued.

A GRTU survey carried out this week showed that many operators believe the impact of the new electricity tariffs would be tremendous and some would not be able to absorb the cost-of-living increase.

"Unless some relief is given, the damaging effect is going to be so much higher. We need to put money in people's pockets."

Though the economy was slowly recovering, the government could "ruin everything" by putting the country through a period of austerity, Mr Farrugia reasoned.

He called on the government to give other positive signals in Monday's budget, such as granting incentives to all forms of industry and giving a clear way forward on the issue of pensions.

Budget online

The Department of Information will be setting up a link on its website, (www.doi.gov.mt), to the website of the Ministry of Finance (www.mfin.gov.mt) for the full text of the budget speech, the financial estimates as well as the economic survey, as soon as the Prime Minister concludes his budget speech in Parliament on Monday.

Moreover, an audio recording of the budget speech as well as audio and video recordings of the Prime Minister's press conference at 8.15 p.m. will also be broadcast on the DOI website late on Monday evening.

Further information may be obtained by calling Freephone 153 or by sending an e-mail to info@gov.mt