The Labour Party held a national conference yesterday on the cost of living issue, only to be told that the current high rate of inflation will come down naturally to between one and two per cent by the year’s end.

That, however, only partly reduced the impact of the new ground broken by yesterday’s conference. The conference, held at the Mediterranean Conference Centre, saw the full participation of Finance Minister Tonio Fenech with two substantive speeches, as well as many of the social partners.

The conference’s tone, with the sole exception of the intervention given by Labour deputy leader Anglu Farrugia, was kept non-partisan.

The conference resembled an enlarged meeting of the Malta Council for Economic and Social Development, albeit with the almost complete absence organisations representing employers’ interests, but, also unlike an MCESD gathering, with the participation of people from all walks of life.

Perhaps contrary to the intentions of its organisers, there was more participation by Labour MPs than had previously been envisaged.

The conference, originally planned to last four hours, ended up lasting five – with the last full hour dominated by a long-winded speech by Labour leader Joseph Muscat, who, at the cost of tiring the audience, listed out no less than 23 proposals Labour is making to tackle the cost of living problem.

The conference also heard, with great attention, two technical presentations by Professor Joe Falzon and Finance Ministry Permanent Secretary Alfred Camilleri.

In all, the conference provided a model of how things should be done – and more similar conferences are to be held in the future, Dr Muscat announced.

And although the impact of inflation and ensuing rise in the cost of living was highlighted many times by examples drawn from everyday life, it was Alfred Mifsud and John Cassar White who pointed out that the real problem is not inflation, but rather job retention and job creation as economic growth.

A side issue that turned out to be not such a side issue after all was the ongoing cost of living adjustment (COLA) dispute between employers, who want to reward productive increases, and warn that maintaining the COLA regime would further damage Malta’s competitiveness, and trade unions, who insist on workers continuing to receive the full COLA payment, which should be €7 a week as from next year.

The General Workers Union’s Tony Zarb warned the union was not prepared to give up COLA, while Minister Fenech said the government has no intention of doing away with the yearly adjustment.

The Union Haddiema Maghqudin’s Gejtu Vella, meanwhile, said that ensuring jobs should be paramount.

In his speech, Dr Muscat argued very cogently that substituting COLA with a productivity index could be very tricky since productivity is often revised retrospectively. What would happen if workers need to be given an additional wage increase after it was established that their productivity was actually higher than previously thought? Would not that add to the uncertainty?

The conference was left in no doubt that Malta has the highest inflation rate in the euro zone. Its prices are 78 per cent of euro zone average prices yet its hourly labour cost is just 44 per cent of the euro zone average, Prof. Falzon explained. Minister Fenech later said he disagreed with the correlation for technical reasons.

Various statistics put Malta at the very bottom of the euro-heap, in terms of increasing labour costs, or second from the bottom for instance in terms of the food, meat, fish, milk and cereals and oil and fuels indices.

This was correlated by findings reported upon by Mr Camilleri. Inflation in June amounted to 2.8 per cent, with food and beverages accounting for 42 per cent of the hike, restaurants and hotels 18 per cent, alcoholic beverages nine per cent, water and electricity 21.5 per cent.

As far as fruit is concerned, the price of bananas rose by 21.3 per cent and strawberries by 49.6 per cent. As for vegetables, the price of potatoes rose by 48 per cent, carrots by 36 per cent, onions by 35 per cent and tomatoes by an astounding 132 per cent because of plant disease.

But even if inflation in Malta is due to fall to between one and two per cent by the end of the year, it would still be above the euro zone’s 0.4 per cent average.

Among the reasons for price increases, Mr Camilleri listed a rise in public sector administration prices, the removal of subsidies, the diseconomies of scale, structural market rigidities and the rental value of commercial premises.

He recommended aiming at a low inflation environment, assessing the input of public policy actions, close consideration of inflation, increasing public sector efficiency and strengthening competition policy. The latter point would later be one of Dr Muscat’s own main points.

The meeting heard from a variety of representatives of society who spoke on how the impact of inflation affects everyday lives.

Many, like Dr Charles Pace and Dun Ang Seychell mentioned the price of medicines. This and the pension rate were also the main complaints raised by pensioners’ representatives.

Fr Anton Gouder, meanwhile, spoke of the effects of inflation on human beings and on families.

In his first intervention, Minister Fenech said the government fully intends to control inflation. Maybe tactics such as bulk buying were good for their time, but they are impossible to propose today. Malta has the lowest tax on employment in Europe – 27 per cent in comparison to the euro zone’s 35 per cent average, while some other countries’ average rate stands as high as 42 per cent. He explained that some price rises had resulted from the local market’s limitations – with its high distribution expenditure and the economy’s seasonality.

Mr Fenech pointed out that according to all presentations, inflation was not so bad and that it was, in fact, tracing the EU’s 2007 average.

What happened then? 2007 was when Malta was gearing to adopt the euro and when the FAIR agreement as well as the other price stability agreements struck with importers had kept prices level. But once the pressure was lifted, prices shot upwards. The Office of Fair Trade must be strengthened, although it would no longer be possible to re-introduce price police.

Finally, Mr Fenech warned that we must look at what is happening in other countries. Ireland, which had a 10 per cent deficit, cut public sector wages by 10 per cent. So did Latvia.

In his second intervention, Mr Fenech said the health sector was very difficult to police, which was why VAT on doctors’ services had been removed. He too pays high charges, Mr Fenech said, relating the anecdote of when he had taken his son to the doctor and was charged €40. When the government gave financial assistance to parents with children in private schools, the schools promptly increased their fees, he observed. Nor is Mr Fenech convinced that a cut in VAT charged by hotels and restaurants would lead to lower prices. And where would government get its €35 million it gets from that VAT segment, he questioned.

In his concluding speech, Dr Muscat listed 23 proposals to tackle the rising cost of living. Inflation is now affecting not just the working class but also the middle class, students and pensioners. People who are just above the poverty line by a few euros do not receive the government subsidy. The middle class, meanwhile, has become the government’s biggest target and is the population segment from which the government derives the bulk of its taxes.

Until some time ago, people used to think there is nothing one can do about inflation. Now, at least, that is changing, Dr Muscat said. Prices are rising more than wages and up to just a few years ago, people used to tackle rising prices by working harder, taking a second job, and so on. This is no longer possible for many today.

Quoting from a recent IMF report, Dr Muscat read: “The causes of persistent inflation have to be rapidly tackled. Inflation currently stands at four per cent, substantially higher than in the rest of the euro area. While the lagged pass-through of oil prices to domestic energy prices accounts for part of the differential, food price inflation has remained high. The competition authority needs to adopt a more proactive stance, expeditiously addressing any monopolistic behaviour in the wholesale and retail markets, while the regulated segments of the markets should be liberalised. Adequate capacities and institutional independence should be granted to the competition authority.”

All efforts must thus be made to create more and more jobs and to derive all possible benefits from EU funds, Dr Muscat said. The government must not introduce new taxes, but must control its expenditure; there must be full transparency in the price regimes of products imported by the government; liberalisation must not lead to higher prices but rather to more competition and hence lower prices,

Now that the Opposition has collaborated with the government on rent reform, he said, the government must give an example by being moderate in the rent increases it proposes.

In the meantime, he said, strategic assets such as Air Malta must not be privatised.

Also among the 23 proposals was a call for full transparency in the costs of water and electricity and for the government to establish a ceiling for next year’s water and electricity rates in the coming budget.

Likewise, Dr Muscat called on the government to freeze all its prices and charges for next year; to pay its medicines bills on time because that too was adding to the uncertainty. The government, Dr Muscat urged, needs to investigate why food and vegetable prices have increased to such an extent yet farmers are barely able to make ends meet.

Additionally, the government should replicate the good work done by the National Euro Changeover Committee during the euro-changeover and publish the recommended price of every product on a website. And finally, government must listen to Malta Hotels and Restaurants Association, which has pledged that it is ready to ensure that any cut in VAT is passed on to their customers.

In a statement issued yesterday evening, Minister Fenech said Dr Muscat had not come up with anything new in his proposals. Many of proposals, he said, were copied from the government’s electoral commitments while others were simply contradictory.