GRTU on COLA – Vince Farrugia

Taken from this week's interview with Charlot Zahra of Business Today 

What is the GRTU's reaction for the COLA increase announced for the 2010 Budget to make good for the inflation sustained by consumers during 2009? Is it justified or not?

There is a formula agreed by all social partners, GRTU being one of them, and that formula has to be respected. This year COLA has produced an increase for all employees (not consumers) of €6.06c per week. We are not so happy with the formula as it no longer reflects the situation today, but unless an agreement is reached on a change, it has to be respected.

The reason why GRTU says this is that, while many employees is the public sector and in other private establishments benefit from an annual cost of living, as a result of their collective agreement, many other people work in establishments where workers are not unionised and not subject to a collective agreement. Most times the only increase they enjoy is the COLA, it is also the only increase, and not even in full, that  pensioners and others on social income receive as annual adjustment.

GRTU on the other hand notes that households` take-home pay needs to be adjusted as otherwise not only do people suffer a consumption regress but retailers and service providers also feel this lack of disposable income adjustment in their sales. GRTU cannot therefore object to the full payment of COLA.

In the GRTU's view, is this COLA increase an excessive one or not, especially in view of the current economic situation facing the country in the midst of a recession?

The increase is not a question of judgement. It is what the current inflation rate justifies, and it has to be paid. The question really is whether employers can afford it, I believe that many of our members cannot, so the question really is how can employers be assisted to meet this necessary obligation.

We do not agree that Government should subsidise employers, as that would mean new tax revenue has to be obtained somehow. It often means that the middle income groups would have to fork out the money. This would be really unjust as for most middle income groups, COLA does not reflect a good enough adjustment for their extra household expenditure as a result of inflation and most times they do not receive sufficient salary increases to balance the difference, unless they are public sector employees covered by a collective agreement which already includes annual increments for beyond COLA levels. So at the end it would be simply robbing Jack (middle income groups) to pay Paul (lower income groups), this is not acceptable to GRTU.

How do you think that the COLA increase will affect small and medium-sized enterprises during 2010?

In the first instance they would see an increase in sales as households have that little extra income to spend. Cost wise however, it will effect them badly, especially if they are in a business where prices cannot be increased so easily or where incomes are subject to a fixed contract, which does not include a cost of living escalation clause.

Do you think that Maltese and Gozitan entrepreneurs can sustain more burdens in view of the recession that has afflicted the country and the high inflation rate that has impinged negatively on production costs?

The answer is of course not, but the issue is much bigger than COLA, GRTU has just presented Government with a booklet of proposals that should be included in Budget 2010 as a bold approach to support enterprise. The COLA negative impact can be mitigated if an agreement is reached with the Ministry of Finance to accept this year a discount on social contribution payment per worker equivalent to at least half the COLA payment per worker. This amount would be made payable to Government over the next 3 years. Effectively Government would be lightening the burden on employers this year as other burdens heavily impinge on employers for it to be redeemed in the future when things should look better. 

Was the matter discussed in the MCESD prior to this announcement or not?  

This issue was aired but no formal motion by members was ever presented, so no decision was taken. For a decision to be taken there has to be a complete process of negotiations as happened when COLA was originally introduced. Currently MCESD members are discussing a joint paper to be presented in connection with Budget 2010 and this paper may serve as a launching pad for eventual COLA restructure.

Has the GRTU made an analysis of how the proposed COLA increase will affect its members in various economic sector of the economy?

Yes.The sectors that are subject to a contract that guides their income and which contract is not renewable every year, other sectors in a highly competitive market where the pressure at the moment is for the reduction of prices to sustain market share. During the current economic slowdown, many firms are not in a position to put up prices to cover costs. Only firms in a monopolistic situation can simply pass on the extra cost. We will however in the next few months see price increases as firms adjust to cover the extra costs.

Which are those sectors that will be most hit hard by the COLA increase?

The firms especially in export trade and in tourism who's market is an international one, where competition is very tight and in view of the economic slowdown internationally will have to reduce prices to continue to compete, especially those firms with markets outside the Euro Zone, and who therefore have the double negative stroke of increases in costs in Malta, due to COLA among others, and are also suffering increased prices due to a hardening Euro exchange rate

How will job levels be affected in these sectors as a result of the COLA increase? Could you kindly state by how much?

I do not believe that COLA by itself will have a determinate employment impact. Employment will be effected if Government fails to come foreword with a bold enterprise driven budget for 2010.

GRTU has made a series of proposals for Government to sustain enterprise and we are confident that Government will not fail to be bold in its enterprise support initiatives. The problem is not one of COLA alone but more a question of the need for Maltese enterprise to be sustained to meet current cash flow problems and for enterprise to have enough funds to restructure and innovate. I do not think it is fair to identify COLA as a main problem in itself. The problem is bigger than COLA.