The Malta Independent has obtained a copy of the draft plan and a concise summary of the 22 measures follow.
The social pact, according to Mr Scicluna’s report, includes a package of measures aimed at enhancing Malta’s national competitiveness and upgrading its long-term development in a manner which is sustainable from the economic, social and fiscal points of view.
In the preface to his draft plan, which was rejected by the GWU, Mr Scicluna said the social pact aimed to attract investment as well as generate more and better employment opportunities and enhance social welfare and cohesion. He said the tri-partite social pact – signed by government, the unions and the employers – is intended to improve the credibility of economic and social policy in Malta.
He proposed that the social pact covers a period of three years – from 1 January 2005 to 31 December 2007.
The implementation of the measures included in the social pact would fall under the scrutiny of the MCESD which, he suggested, should issue reports on a six-monthly basis on progress in the implementation of the measures and the results being achieved.
He suggested that the social partners should submit a detailed plan of action regarding their obligations in the implementation of the measures agreed to in the social pact. The plan should be submitted by 31 March 2005. He added that the MCESD should appoint a number of working groups as may be deemed appropriate.
Mr Scicluna proposed that the social pact opens the way to further social dialogue regarding areas of economic and social reform not covered by the pact, including the systems for the provision of public health services, pensions and welfare
benefits.
He said the objectives of the pact would include improving economic competitiveness through a reduction of two per cent in the unit labour cost of production. This is expected to be achieved by stimulating work and economic activity and by implementing an appropriate wages policy. Another objective of the pact is to sustain social cohesion and further improve the social fabric through the development of human capital, which should be reflected in a projected increase in employment of 4,500 full-time jobs. The measures also aim to reduce the annual fiscal deficit to around Lm30 million – 1.5 per cent of the GDP. This should be done in a manner that is conducive to promoting competitiveness, among others.
The 22 measures contained in his draft social pact are divided into four distinct categories: stimulating work and economic activity, the wages policy, the development of human capital and taxation and government expenditure.
Stimulating work and economic activity
In order to stimulate work and economic activity, the draft social pact suggests the following measures:
1. The annual vacation leave entitlement will be reduced by two days in 2005, another two days in 2006 and another three days in 2007. This measure, Mr Scicluna said, is intended to enhance competitiveness of wage levels in Malta through an increase in productivity.
2. The draft plan suggests that that first four hours of overtime per week are to be remunerated at normal rates of pay. This would be subject to a maximum of 100 overtime hours per year which can be remunerated at normal rates of pay. It is also subject to the condition that overtime hours remunerated at normal rates shall, in any week, not exceed one half of the total overtime hours worked.
3. The draft plan suggests that a number of public holidays can be replaced by optional days of vacation leave following consultation with the political parties and other interested entities.
4. The application of tax benefits for part-time workers will be available to either of a married couple in the case of a joint tax computation. This measure, according to Mr Scicluna, is intended to remove a distortion from the income tax system and will serve as an incentive for increased participation in the labour market, especially by women.
5. The government will implement measures to effectively enable the provision of quality childcare. This measure is also expected to increase participation in the labour market, especially by women.
6. The plan suggests that the government implements measures to effectively eliminate abuse of invalidity benefits which would retain older workers in the labour force and reduce the government’s expenditure generated by abuse.
7. The plan also suggests an effective reduction of excessive regulations and bureaucracy within the public sector through a formal process whereby new regulations will have to be justified. It also proposed the setting up of a MCESD working group to discuss this issue.
8. The plan also suggests the reallocation of public funds to a scheme involving partnerships between researchers and business.
9. Flexible time schedules within the standard working week in the public sector should be adopted, the plan says. This will apply in entities where this is required for the purpose of national competitiveness.
Wages policy
10. Starting from 1 January 2006, wage increases in excess of the Cost of Living Adjustment (COLA) are to be in the form of non-cumulative cash payments. The COLA system will, for the duration of the social pact, continue being applied as at present with the adjustment being incorporated in the basic wage.
11. The report suggests that on 1 January 2008, non-cumulative cash payments awarded in 2006 and 2007 will be incorporated, in part or in full, in the basic wages according to the rate of economic growth.
12. The report proposes that the first 50 cents of the weekly cash payments awarded in 2006 and 2007 are to be free of income tax. This will contribute to sustain the disposable income of workers.
13. It suggests that for the purposes of the computation of the pensionable income for people retiring between 2007 and 2009, the non-cumulative cash payments awarded in 2006 and 2007 shall be deemed to form part of the basic wage.
The development of human capital
14. The report suggests that the system of unemployment benefits shall be transformed into one which effectively leads to participation in the world of work. It is being proposed that unemployed people aged 25 and under shall be requested to undertake placements of six-months duration with firms in the private sector, during which they will benefit from training and work experience. They will not be paid because they will continue receiving unemployment benefit.
15. The report suggests that private sector employers contribute to a fund for the retaining of workers. Private sector employees shall contribute one cent (1c) per employee hour worked towards this fund.
16. It suggests a reform of the system of funding of tertiary education and of the student stipends system based on a formula reflecting costs and tied to agreed criteria.
Taxation of government expenditure
17. The report suggests that the government should provide a commitment not to increase income tax rates and value added tax rates for the duration of the social pact. This should provide a degree of certainty in industrial relations.
18. The government should also extend the existing system of voluntary tax agreements based on benchmarking to all categories of self-employed people. This, according to the MCESD chairman, will introduce more fairness in the tax system between employees and the self-employed.
19. The report suggests that excess government employment should be reduced through private-public partnership arrangements and individual voluntary redeployment. The government is to guarantee jobs for redeployed workers against the eventuality of enterprise dissolution.
20. The increase in expenditure of the government wage bill should not exceed one per cent per year for the duration of the social pact. This is essential for more fiscal consolidation.
21. The report suggests that the government should undertake the reforms necessary to control expenditure in line with the fiscal consolidation targets.
22. Finally, the proposed plan suggests more effective scrutiny of developments in government recurrent and capital expenditure programmes by the MCESD.
The report says that the social partners should begin discussing the new social pact in January 2007 for an agreement applicable as from January 2008. It also suggests that the government should ensure that the Tax Compliance Unit has all the resources at its disposal to guarantee a level of tax compliance that minimises tax evasion.