The president of the Malta Chamber of Commerce Marisa Xuereb has warned that granting the Cost of Living Allowance (COLA) increase to everyone will lead to widespread price increases and more inflation.

Xuereb was speaking during an interview with The Malta Independent on Sunday, when she was asked about a Budget proposal by the Chamber which would limit the COLA increase to those who have not had a raise equivalent to it in the last year.

The upcoming COLA has been a talking point among business lobbies in recent weeks and months, with high inflation rates meaning that it might be over €10 – almost six times more than what it was in the 2022 Budget.

“The moment we spread COLA across the board, prices will rise across the board, and will rise substantially,” Xuereb said.

“The people worst affected by this will be the lower income groups, because they will receive the COLA today, prices will go up tomorrow, and they are simply back to square one,” she added.

This is why, she said, means to limit inflation from other sources and not just energy as the government is doing are needed, and why the Chamber is proposing that the COLA is limited to those who have not received a raise in the last year.

Those who have received raises over the past year have had their purchasing power protected, which is ultimately the intention of the COLA, and therefore the allowance will be more effective at compensating those who have not received raises and will manage to mitigate inflationary pressures, she argued.

The COLA is based on an agreement entered into by social partners 32 years ago.

That agreement, Xuereb explains, allows the COLA to be tweaked in exceptional circumstances in order to reflect those same circumstances “and I think we are living exceptional circumstances today from an economic perspective” she added.

“The circumstances we have at the moment are of very high inflation,” she said. She noted that while government has been subsiding energy costs, the inflation rate of other items means that our prices are actually rising faster than the European Union average.

There is also the matter that while energy prices fluctuate up and down, she said, the prices of many other goods and, particularly wages, will not go down.

On wages, Xuereb said that in the “tight labour market” that Malta is in – a tight labour market being one where there are a lot of jobs available but very few people to fill them – there is a lot of poaching of workers, which automatically is driving salaries upwards.

This, coupled with the leak of human resources to the public sector, she said, is creating “very significant” wage inflation as well.

Asked whether workers should feel like they have to rely on changing jobs to improve their salary conditions to what they feel to be a more adequate level, Xuereb said that the increase in people changing jobs is a pretty recent phenomenon.

“The ambition today is more about changing one’s job frequently with the aim of eventually becoming self-employed, and this in itself has an inflationary impact,” she said.

This being said, Xuereb pointed out that many employers are much more inclined towards increasing the salaries of their employees in order to keep hold of them and their skillsets, and that some people switch jobs without even having that type of conversation with their employer.

Moving back to wage inflation, she noted that while prices of goods, such as food, are increasing, the cost of service has gone up substantially as well. Xuereb pointed out that since January the inflation in services has been double what the EU average is, with a substantial component of this coming from restaurants and the entertainment industry.

This is why, Xuereb said, the Chamber has also proposed a VAT reduction from 18% to 7% for restaurants.

Asked what would stop these restaurants from, if this proposal is implemented, keeping prices the same and pocketing the differences from the VAT reduction as profit, Xuereb said that it is the market itself which has to stop the operator from doing this.

“This is another reason why we need to adopt smarter ways of dealing with economic issues. If our consumers are constantly going to think that whatever happens with inflation will be compensated by government, then they will be reluctant to use their power as consumers to make certain choices which will enable them to cope better in a situation where prices have a propensity to rise,” she said.

COLA adjustments have varied over the years, but have largely been quite low having not exceeded the €3.50 mark since 2013. Each time, a low COLA brings about discussions based around the theory that the allowance does not correlate with what people actually have to deal with in their day-to-day lives.

Nonetheless, workers have been stuck with whatever raise the COLA has decided. With the allowance now said to be over €10 for the upcoming budget, the shoe is firmly on the other foot, with businesses being those who have complaints about it.

Asked whether this is a matter of two weights, two measures, Xuereb said that the allowance has always been worked out in the same way, and that it was low in previous years because a number of retail sub-sectors were dropping prices owing to increased competition.

“When people were saying that it wasn’t enough, it is because their standard of living and what they consume became a bit more sophisticated,” she said.

The impending COLA increase now is only so high because inflation has hit all sectors, she pointed out.

 

‘Going from using a private car to a shared taxi is not a major difference’ – Xuereb

It’s not all about inflation, however. The Chamber makes a raft of other proposals – some related to the environment and to trying to encourage people to take up alternative methods of transport and move away from private cars.

The one which has gotten the tongues wagging most is a proposal to introduce parking meters in urban centres which would move parking – even on the road – away from being free.

“We aspire to be a better country, but then we pick and choose what measures we should adopt in order to actually become a more disciplined country,” Xuereb began, when asked how this measure would be implemented.

The proposal is to introduce parking meters into densely populated areas or urban centres, with the payment through such meters being saved in a personal e-wallet – rather than going to the government – and then being available for use on shared methods of transport such as taxi or carpooling services.

“This way we also help facilitate the switch towards alternative mobility: we can’t talk about how much traffic we have and say that we need to reduce this if we are not willing to make certain changes in our lifestyle,” she said.

Any changes, she continued, cannot be radical.

“For example, we cannot expect to go from using our private cars to using a metro… it’s too big a difference. But to go from using your private car to a shared taxi is not such a big difference,” she said.

There are in fact probably more perks to it than to driving, Xuereb added. For starters it is still a door-to-door service, parking times are cut, there is no fee related to parking, there is no stress related to driving and people can maintain whatever they used to do in a day – something which wouldn’t necessarily be the case if they had to, for instance, use public transport which is known for having a longer, and sometimes more unpredictable, commute.

“We tend to have policies which protect the status quo and we need to adopt policies to actually trigger changes which will make lives better for everyone,” she said, adding that if people have to deal with less traffic and less stress driving, then their lives will automatically be better.

 

‘Doing away with foreign workers is not an option’ – Xuereb

A number of other proposals concern the labour market, where the Chamber wants to see action taken towards alleviating Malta’s labour shortage.

While much of the policy is targeted towards the facilitation of the employment of third country nationals, one proposal is to introduce a five-year tax break for Maltese nationals working and living abroad to return to Malta.

It’s a proposal aimed at bringing back highly-qualified Maltese nationals back to the country. Asked how effective it can be though, particularly considering that the sentiment seems to be that those leaving the country are leaving due to factors such as environmental conditions, Xuereb said that it’s merely an incentive.

“Will it be good enough for everyone? No. But it will be a good enough incentive for some, because with all the issues in Malta, many still feel a connection to the country. If we give them the correct incentive, some of them might give it a shot,” she said.

Moving onto third country nationals, it has been argued that the employment of such foreigners is one of the chief factors which is keeping salaries, particularly at lower income levels, from improving.

Asked about this, Xuereb pointed out that foreign workers are present at all levels and in all industries because there are shortages everywhere, not just in low-income sectors.

“Salaries have increased substantially in higher levels and not as much in lower levels for the very simple reason that skills levels in these lower levels are very poor, both in the local workforce and in third country nationals who are being brought into the country en-masse as labourers,” she said.

A lot of these workers do not stay in Malta for long, Xuereb said. In fact, roughly half leave within a year, and by the time two years have passed, 90% of them would have left.

With foreign workers making up a third of the workforce, this amount of turnover creates incredible costs for businesses in terms of training and even in terms of loss of efficiency, Xuereb said.

“It’s very, very important to find a way of improving retention of foreign workers. Doing away with foreign workers is not an option,” she said.

“It’s simple maths: there are more people retiring than there are coming out of the educational system looking for a job. We have exhausted the potential of female participation in the workforce, because younger cohorts of females are almost all gainfully occupied, and the pockets of people who are not in gainful employment have specific reasons such as certain care responsibilities. So we need foreign workers,” she explained.

“Third country nationals are an integral part of the workforce and we have to treat them as such. We cannot treat them as people who are here to exploit for as long as they are here,” she said.

This is a mentality that persists because of “very poor” enforcement, she said. People performing jobs they are not trained for, or not being registered, needs to be controlled, as do unlicensed employment agencies.

Some of these agencies are not being regulated, meaning that they can send a worker to work somewhere and pocket part of what should be their pay themselves, a situation which Xuereb calls “abusive”.

On the whole, Xuereb said, Malta needs to improve its strategy because the country is competing with every other EU country as well, as this labour shortage is being felt everywhere.

She said that the country needs to draft a strategy which provides an attractive package for workers to come to Malta and stay in Malta, because as things stand, those same EU countries are managing to attract Maltese workers – let alone how much more they are attracting people with no connection to Malta.