Malta's main employer organisations have rejected a proposal for the cost-of-living adjustment (COLA) to be made twice a year, warning that more frequent increases would create uncertainty for businesses, make costs harder to forecast and risk fuelling further price increases.
The proposal was floated by GWU secretary general Kevin Camilleri in an interview with The Malta Independent on Sunday, in which he called for the COLA mechanism to be revised to better reflect rising living costs and the financial pressures facing workers.
Camilleri argued that adjustments should be made twice a year rather than annually and questioned whether the basket used to calculate COLA still reflected present-day household expenses.
The Malta Chamber of Commerce, Enterprise and Industry, the Malta Employers' Association (MEA) and the Malta Hotels and Restaurants Association (MHRA) all rejected the idea.
However, there was greater openness among the organisations to discussing other changes to the COLA mechanism, including revisiting the basket used to calculate inflation.
Asked by The Malta Independent on Sunday whether employers would support such a proposal, MEA director general Kevin J. Borg said the association was not in favour of an interim COLA payment because of the additional uncertainty it would introduce into companies' annual budgeting.
Borg also pointed towards a practical difficulty in operating such a system.
He said that if the COLA payable from January to June each year were based on the previous September's Retail Price Index (RPI), while the July-to-December payment were calculated using March's RPI, any increase in inflation would automatically push the second payment upwards.
However, the reverse would present complications.
"COLA for the second half would automatically increase if the RPI is higher, but in the case of a lower applicable COLA for the second semester, a downward adjustment would be necessitated to the salary in which the COLA is incorporated, and this is not ideal," Borg said.
The Chamber was also strongly opposed to the GWU proposal, saying that while its intention was to provide workers with immediate relief during periods of high inflation, doubling the frequency of COLA adjustments would be "economically counterproductive" and based on a misdiagnosis of the causes behind declining purchasing power.
"Shifting to bi-annual adjustments imposes unpredictable mid-year wage cost shocks on businesses. Employers set annual operating budgets, contract pricing and financial forecasts based on a 12-month cycle. Unscheduled or semi-annual wage adjustments severely undermine financial visibility - particularly for SMEs operating on thin margins," the Chamber said.
The Chamber argued that adjusting COLA twice a year without a corresponding increase in labour productivity would simply accelerate what it described as "economic tail-chasing".
"When mandatory wage bills go up mid-year without higher economic output, businesses - especially in domestic retail, services and hospitality - are forced to immediately adjust their selling prices upward to stay solvent," it said.
"This creates a hyper-reactive wage-price spiral that swallows up wage gains within months, leaving low-income earners right back at square one."
The Chamber said COLA was intended to function as "a statutory, macro-economic stabilisation mechanism", rather than a real-time inflation tracker or substitute for wage growth generated through improved skills.
MHRA president Tony Zahra similarly opposed moving towards two COLA adjustments each year, arguing that one of the strengths of the existing mechanism is the certainty it provides employers when calculating their costs.
"COLA has been a great success in Malta as it established a minimum cost-of-living adjustment annually, which allowed companies to be in a position to take on contracts spanning over a year with the knowledge that there will not be any wage fluctuations over a 12-month period," Zahra said.
"To have a system where there is an adjustment twice yearly defeats the objective for which COLA was set up. Clearly, it becomes extremely difficult to project costs going forward if these are revised every six months."
Zahra said the ability to accurately plan costs associated with production had contributed to Malta's economic success and benefited the country as a whole.
"We therefore feel that a twice-yearly review would harm one of the more important economic advantages that Malta offers," he said.
The three employer organisations were also asked about Camilleri's criticism of the basket used to calculate COLA.
Camilleri had argued that the basket was designed before rental prices rose substantially and before costs such as mobile phones and internet services became essential household expenses.
Borg said COLA was an established system agreed upon by the social partners and calculated objectively using the RPI, which itself is based on the Household Budgetary Survey carried out periodically by the National Statistics Office.
However, the MEA supported ensuring that the items used to measure inflation remain representative of what households actually spend their money on.
"Malta Employers' Association is in favour of maintaining an updated list of items representing a typical household's spending for the purposes of measuring inflation. Indeed, consumer patterns and trends change and evolve over time, and this has a bearing on the statistical weightings of the product or service in the overall basket," he said.
Borg warned that if spending patterns were misrepresented, the COLA calculation could be distorted either upwards or downwards.
"That said, Malta Employers understands that mobile phone services and internet subscriptions do form an integral part of the current basket," Borg added.
Zahra was likewise open to reconsidering the composition of the COLA basket, while stressing that changes should only be made following agreement between the social partners.
"Changing the basket on which COLA is based is something which has been discussed over time, and perhaps it is time to revisit this issue," the MHRA president said.
"It is extremely important that any changes are done in agreement with all social partners and government. Clearly, there is a formula that has stood the test of time, and we should be careful before any changes are made," Zahra said.
The Chamber took a more cautious position, stressing that the RPI basket was not an arbitrary formula but was based on empirical data gathered through the NSO's Household Budgetary Survey.
"The weightings reflect average household spending patterns across the entire economy, not single items in isolation," it said.
The Chamber particularly pushed back against the prospect of incorporating private residential rental prices into a universal mandatory wage index.
It argued that rent inflation affects specific demographics rather than the workforce as a whole, meaning that linking nationwide mandatory wage increases to housing costs could produce distortions.
"Forcing all employers across every industry to absorb blanket wage increases tied to localised housing pressures penalises businesses while doing nothing to solve the structural supply-and-demand issues in the property market," the Chamber said.
It also pointed towards the current RPI structure's place within Malta's longstanding tripartite agreement between unions, employers and government.
"Arbitrarily altering the weighting mechanism without rigorous statistical justification or explicit agreement at the Malta Council for Economic and Social Development (MCESD) risks destroying the delicate industrial peace that has kept Malta going for decades," it warned.