The Malta Employers Association is suggesting that the Cost of Living Adjustment mechanism should be modified to a minimum of €2.50 and a maximum of €6 per week for a period of five years.
Then, any amounts accrued in favour of employees or employers will be awarded on the 6th year and beyond. Accruals would be paid in amounts of not more than €1.50 per week each year.
On Tuesday, MEA director general Joseph Farrugia said he wants to have an agreement in place for a minimum and maximum COLA with all social partners by 2024.
As an example, if over a five-year period the total COLA would have amounted to €28, but €26 was paid out by employers, the COLA in year 6 would be the COLA plus €1.50, and would be the COLA plus €0.50 in year seven.
Inflation in the past months has led to speculation that the COLA to be announced in the budget is to be between €8 and €10.
The MEA is suggesting that the minimum and maximum COLA should be established over a longer term so as to create more stability.
The MEA wants the minimum and maximum amounts revised every five years, upon consensus between the social partners.
Farrugia said that MEA is asking for a stabilising element and not for a change in the mechanism, as despite it being based on inflation rather than productivity, the COLA has always been absorbed by businesses with minimal disruption.
He added that such proposals are “not intended to provoke a tug of war between the social partners to raise or reduce COLA adjustments, but rather to respect the mechanism which has been in operation for thirty years and recommend a way forward to guard against economic shocks to everyone’s mutual benefit”.
The results of a survey unveiled by MEA on Tuesday show that more than 50% of local businesses are concerned about the expected wage rise.
The survey involved 400 businesses, with 55% saying that they expected a negative impact from the COLA adjustment, while 38% described it as a medium burden.
50% of the businesses said they will partially pass the increased costs of operation to their customers, with 22% of them to pass on the increase on to their clients in full.
Farrugia explained that it is companies which are the most labour intensive which are going to be mostly impacted. Since there is a huge competition in the market for the sector they cater for, prices cannot be increased as direct demand will decrease with consumers being absorbed by their competition.
“We cannot assume that everyone is going to be impacted the same,” he said.
Asked how this COLA increase will affect operating costs, it resulted that those companies catering for the domestic economy believe their competitiveness will be affected.
Apart from how they are currently being impacted because of inflation, businesses were also asked about how they are expecting to be impacted in the near future and years to come.
The majority of the companies which participated (41%) employ between 10-49 people, whilst only 5% having less than 500 employees
The majority of participating companies came from the wholesale and retail sector (24%) followed by the manufacturing (18%), hospitality and tourism (15%) and the professional services (14%).
Tha majority of participating businesses also geared towards the domestic economy (63%) with only (24%) catering for both the export and the domestic economy.
In total only 56 companies replied that they are covered by a collective agreement; when asked whether it includes the 2023 COLA there was a balance between the yes and the no. There were also 21% who had said that their collective agreement had expired.
Farrugia said that these results are “not only about the COLA inflation”.
He said that if in the coming years the inflation continues to grow, prices might increase for clients, which could result in a ripple effect in coming years as businesses lose their competitiveness.
Mentioning the 28% who are planning to absorb the extra costs, he said that such companies might go down this route because they are not labour intensive, thus production costs are low, “or else they are in a competitive market and cannot increase prices as it will result in less competitiveness and losing customers”.
The majority of those who said that they would absorb the operating costs themselves are coming from the professional services industry.
Farrugia noted that these answers were obtained during a time where there is currently a subsidy on the energy bills, meaning that if these are to be revised such costs will only increase.
Asked about the current inflation situation, 55% of companies said that they have managed to absorb costs increases and kept their businesses stable, whilst the rest have resorted to increase them.
64% of businesses have also indicated that they are expecting a decrease in demand for the product/service they offer in the coming year. The sectors which are expecting this result the most are the wholesale and retail (77%), hospitality and tourism (76%) followed by the manufacturing (68%).
In his comments the general director said that when it comes to the tourism and hospitality sector, future tourists might seek ways to cut down their costs by downgrading their type of accommodation.
In total 72% of businesses are expecting to experience reduced profitability in the coming 12 months, with 64% of them expecting to maintain the same level of employees.