EC's call to reform COLA is caution to government - employers

Malta must reform its system of pensions and cost of living adjustment mechanism, the European Commission warned yesterday in recommendations to member states to deliver on growth, jobs and public finances.

Malta is also one of the few member states where wage increases are linked to a mandatory cost-of-living adjustment (COLA) mechanism in line with inflation developments. But the EC said this adjustment could further hamper labour competitiveness.

The MEA said that although the EC’s assessment does not paint an apocalyptic picture of the Maltese economy, the recommendations are a caution to government. “Basically the Commission is bringing to light situations which our members face but which government sees differently. It is essentially a call to face reality, even if reality bites sometimes,” the MEA said.

“Perhaps the most radical and contested recommendation is the one related to wage indexation. MEA has been claiming for years that the COLA mechanism is outdated and could result in a loss in competitiveness,” the MEA said in a statement.

“This is also being discussed at MCESD but it is evident that government and unions will resist – for political reasons – the removal of automatic cost of living increases, in spite of advice to the opposite by the IMF, the Governor of the Central Bank, and now the Commission.”

The MEA also said other recommendations from Brussels reflected a number of concerns the association had expressed over the years over competitiveness and sustainability of public finances.

On pensions reform the MEA said it agreed with the recommended measure to index retirement age to mortality age. This is being adopted by other countries and is a realistic way to ensure that the retirement age reflects changing demographics.

“A very sobering recommendation concerns school leavers. It should be a national priority that, with so much investment in education taking place, the number of school leavers has to be cut down even further than the 33% projected for 2014 from the current 36.8%. However one needs to compare the measuring instruments to ensure that the comparative figures are based on the same basis,” the MEA said.

The MEA also said government should not give in to pressures to increase expenditure unless it is matched by revenues generated through economic growth.

“Another tough nut to crack is our dependence on fossil fuels, as moving from an over reliance on fossil fuels entails substantial investment,” the MEA said on Malta’s lack of investment in alternative energy.