No playing around with COLA mechanism – Muscat

The government is taking on the Opposition over complaints that a miserly 58c Cost Of Living Allowance will be paid out in this year’s Budget, due to the low index of inflation with which the COLA is tagged.

In a statement, the government hit out at former finance minister Tonio Fenech, under whose watch a €1.16 cost of living increase jarred with a €500 weekly increase in salaries for ministers and parliamentary secretaries.

“Boasting about the high rate of COLA paid out is a confirmation of the high prices of the day,” the government said.

The COLA is tagged to the inflation index and acts as a compensatory measure for price increases. But 2014 also marks the year in which energy prices were cut by some 25% for households.

The government said that despite low inflation, it remains obliged to use discretionary measures other than COLA, to lighten the burden on families.

“There can be no playing around with the COLA mechanism,” Prime Minister Joseph Muscat told the press during a European Council meeting in Brussels.

Muscat also quashed claims that the European Commission had flagged deviations on Malta’s budget from its deficit-reduction plans. “The EC’s issue concerns the timing of when we are to publish the budget measures,” Muscat said.

Fenech complains of low COLA

Shadow finance minister Tonio Fenech yesterday claimed that the 58c a week increase under the COLA was not enough for people to cope with the current standard of living and will push more people into poverty.

“Either the government doesn’t know how to calculate or something somewhere went wrong. The government keeps insisting that our economy is doing well but this is clearly not the case, as can be seen by the national deficit rising by an average of €3 million a day in the first six months of the year,” Fenech said.

Fenech said that the average COLA increase between 2008 and 2013, under the previous administration, was €3.84, an average of €200 a year compared to €30 a year with the 58c COLA. “The lowest increase was in 2010, during the global economic crisis, when the COLA only went up by €1.16,” Fenech said. “Joseph Muscat, at the time leader of the Opposition, had protested that it was too low. We now wait for him to practice what he preached.”

Italy angers Barroso

Ahead of yesterday’s EU meeting, Italian Prime Minister Matteo Renzi stirred up a row with outgoing EU Commission president José Manuel Barroso, who criticised his decision to publish a Commission letter warning him about the budget deficit.

Renzi said he could not understand Barroso’s “surprise” about the published letter, given that the Financial Times and Italian media had already “anticipated” it.

“I think it’s time for total and open transparency, the time has come to put an end to secret letters in this building. With Italy there will be total clarity about anything that comes from Brussels, because we think that’s the only way to help citizens understand what is going on,” Renzi told journalists on the margins of the EU summit.

As for the issue of Italy being in breach of the three-percent deficit rule, Renzi said this was no big problem.

“We are discussing about one-two billions difference, we can add them even this morning. For a country that gives €20 billion to Europe, with a total budget of €860 billion, the two billion that in theory could be necessary are a really tiny effort,” he said.

The bigger problem is France’s budget, forecasting a deficit of 4.3% of GDP for next year, well over the 3% Maastricht threshold.

French President Francois Hollande said he had been “in dialogue” with the EU commission for weeks now and that “growth remains a priority”.

“France will respect the rules with a maximum of flexibility,” he said.

As to France’s letter – similar to the one received by his Italian colleague – Hollande said it was “banal” and not worthy of being published.

This is only the second time since the EU commission scrutinises national budgets, as part of its new increased economic coordination powers.