Just in time for the upcoming and now traditional pre-budget document, the European Commission has called on Malta to rethink the forever controversial cost-of-living adjustment ‘given’ to workers in each budget to compensate for the past year’s inflation.

But it is not only the European Commission that holds such a viewpoint toward this annual bone of contention between the trade unions and the government.

Central Bank Governor Michael C. Bonello had called for a similar rethink last year when he remarked that any benefit the mechanism may be perceived to have in terms of stable industrial relations must be weighed against its potential to ratchet price levels upwards, which would constitute a veritable death knell for the country’s already embattled manufacturing sector.

The International Monetary Fund has been calling on the government to completely do away with the COLA for years now in its own annual assessments of the Maltese economy, where it has repeatedly called for the COLA to be replaced with “productivity-linked wage increases at enterprise level”.

Malta’s employers have long been slamming the COLA’s effect on the country’s wage levels and associated competitiveness levels. They have also echoed the IMF’s call for productivity-linked wage increases to replace the COLA, and have also suggested the government foots part of the COLA bill, instead of the increment being absorbed completely by employers. Last year, the government had appeared close to reconsidering the adjustment’s future, but in the end declared that the COLA was here to stay.

And perhaps rightly so. Any such move – an all out scuttling or even a downward tweaking of the COLA – would undoubtedly prove highly contentious and possibly politically destructive, given the incendiary reaction of past attempts to limit the COLA for the sake of competitiveness.

Now the European Commission has added its voice to the fray. Malta, as the European Commission pointed out in its assessment of the Maltese economy this week, is one of the few countries in the EU that has such a generalised wage indexation mechanism. In the EC’s view, and since the COLA effectively adds to the minimum wage, the adjustment “may further hamper the competitiveness of the labour-intensive sectors”.

The COLA issue, the EC observes, is particularly pertinent in view of the recent increases in energy prices, which, the EC said, when coupled with the COLA, could lead to wage-price spirals. Here the EC is speaking purely of business expenses, with Maltese industry’s bottom lines having been beaten toward, and at times into, the red by increasingly high water and electricity rates.

While the EC has not advocated an all out scrapping of the mechanism, it has suggested that it is perhaps tweaked to a certain extent. It also observes a degree of imbalance in the increment being given across the board, having noted that the COLA wage increases are “proportionately higher at the low end of the wage spectrum”.

That much is true, the current €1.16 per week means a lot more to the minimum wage earner than it does to the person earning five time minimum wage – five times more to be exact.

The writing is on the wall, spelt out clearly for all to read. And suggestions by the Central Bank Governor, the economists at the IMF and the European Commission concur that something has to be done to address the COLA issue. These will be ignored at the peril of the country’s economy.

Then again, any decision on the COLA, even as concerns its yearly rate, is fraught with such turmoil and political hardship that few politicians would have the resolve to tackle it head on.

At some point the tightrope between business bodies and the unions will have to be walked. At one time or another, something will have to be done.