Removing tax on the Cost of Living Adjustment (COLA) would be an administrative nightmare, and last year's tax cut method was the best way forward, Finance Minister Clyde Caruana told The Malta Independent.

The Nationalist Party and others have been calling for the tax on the COLA to be removed. Asked why it hasn't, the Finance Minister said that when he announced the COLA, which was listed in the Budget for 2026 as being €4.66, that amount is not taxed this year, but once it becomes part of the wage is taxed next year. 

He said that there is a problem with the idea. He said that in the public sector for example, employees do not get €4.66 because when a collective agreement is negotiated, the collective agreement includes two things, "the COLA calculated for the next five to seven years - depending on how many years the collective agreement is negotiated for, and in addition to that there are increments. This is how it works for all those workers who are unionized and have a collective agreement. Now each and every collective agreement would cater for a different cost of living increase. So what am I going to do? Apply €4.66 for everyone? I'm quite sure that those whose collective agreements would have catered for a higher COLA would protest."

"So I don't think this is the best way to go about it. Secondly it is definitely an administrative nightmare. Thirdly, there are other ways of how one can go about it, and the best way continues to be what I did last year."

"If we want to leave people with more disposable income, even if we don't meddle with the tax rates or brackets, one just increases the ceiling. I'm very against measures where we try to be creative in order to try to come up with something new, as most of the time we end up complicating things."

Regarding the idea of a four-day work week, Caruana ruled it out for now.

"We are where we are today because there has been a lot of hard work by the population at large in order to make the economy successful. My scepticism around this proposal arises from the fact that our productivity is still not where it should be relative to that of other countries which enjoy the luxury of working less. I always bring up the example of the Netherlands, whereby on average people work less than we do, but in terms of their take home pay, it is higher than ours by 2.5 to 3 times as much. The reason is that the Dutch are more productive, they have better skills. The acquisition of those skills comes through more investment in the workforce. The Dutch spend, on average, around 5 or 6 years more in education than we do. The trick is, that for countries to become more affluent, they have to be better educated. Better education leads to more productivity. More productivity leads to more income. Once you have more income, then you can choose to work less and have more leisure time"

He said it's an education problem. "I've been saying this for many years, I find it hard to believe how after 13 years in mandatory schooling someone does not manage to get at least 6 O-levels which are required to enter post-secondary education. If I'm not mistaken, it's still almost 50-50. Now there are people who might say that not everyone is geared to be academic. But in this day and age life has changed. It is all about technology. And you are either literate and have the basic skills, or else it is difficult to move forward and become comfortable in life."

He spoke of the need for there to be more appreciation, not at government level, but at an individual and family level for the importance of education. "We have had different ministers under different administrations, but unfortunately we do not give enough appreciation and value to education."

"If someone fails to achieve a certain standard in education, they will have issues later in life."

The minister said that the 4-day week issue is tied to productivity.  "That is why I am sceptical today, but if we improve our productivity, we can get there."

Rapid bus transit system 

The minister has already publicly aired his views on a metro or tram, and the concerns he has over such a project. But a year ago there was talk about another possibility, which is either a rapid bus transit system or a trackless tram. Asked whether this is something he believes would be more easily doable for the country from a financial point of view, he said: "A bus rapid transit system involves less capital intervention."

As for whether he thinks it could be more successful, he said that he is not an expert in transport and so cannot delve into whether it could be more successful or not. But he said that "from a financial point of view it's definitely something more reachable."

"When one starts speaking about capital projects which are this big, €3 billion (in reference to the mass transport system being studied by government}, it's not going to cost €3 billion at the end of the day. Over the decades, each and every big project in this country has run into overruns. So I always have to be that voice of reason which speaks with certain responsibility about the finances that such projects incur."

He disagrees that the messages being sent by him and the Prime Minister, where Robert Abela seems to be indicating that a mass transportation project is going to go forward while Caruana is being more cautious and concerned, are "mixed messages."

"My interpretation is that the government is going to present plans with the workings being works in progress. What I'm saying is let's be very careful about this. We have to think about it 10 times. We have to say what this involves because this is no small project at all." The minister said that so far, from what he has read, "it is highly unlikely that the numbers can justify these type of projects. I still need to be convinced."

He said that him being convinced would need to be triggered through the answers he is looking for, such as the question surrounding how change in car use behaviour would be brought about and whether the public would be willing to give up cars.

He also said that such a project would need to be subsidised. "We are already subsidising public transport by tens of millions. In addition to that, how much more will this cost? Will it be €100 million, €200 million, What will the price tag be? I don't yet have that visibility. What I am saying is let's be very cautious and before we say that we are ready to give something the green light, we have to think about it ten times."

 The first part of the interview was published yesterday.