NEWS | Tuesday, 16 October 2007

Tinkering with Cola

Kurt Sansone

The Prime Minister may have been reacting to people’s concerns when deciding to set the cost of living compensation at a higher level than that determined by the official mechanism even though sensible economic management dictated otherwise.
It is true that over the past year polls have consistently identified the cost of living as a major concern for a large part of the population. It is also true that people have experienced a relative drop in their quality of life, primarily because they found less money in their pockets.
These concerns are of relevance and needed to be addressed but Lawrence Gonzi’s decision, though popular, may not be the best solution in the circumstances. It smells heavily of political opportunism on the eve of an election.
By sidelining the mechanism with which the annual increase is determined, Gonzi has run roughshod over the social partners. The Cola mechanism is agreed to by unions, employers and government and hence is the fruit of social dialogue.
By interfering with its workings government has only confirmed what many have been saying that the mechanism is not a correct reflection of what people are feeling.
If anything, it is the mechanism that requires updating. A household budgetary survey conducted every five years may not be the ideal method of updating the index to reflect what a typical family’s expenditure is.
Now it is employers who have to carry the can. The risks of such a move are an erosion in competitiveness, which is still a major issue in key sectors of the economy such as manufacturing and tourism.
In a way a precedent had already been set in 2006 when in agreement with the social partners Gonzi awarded a cost of living increase that was 0.50c higher than the mechanism had identified in anticipation of the high utility surcharge. That amount was then deducted from this years actual compensation.
But this time around the additional increase is unrelated to any government induced cost and simply an anticipation of projected price rises in cereals. It is a dangerous precedent and a reversal of policy.
In 2000, to make up for the reduction of subsidy on bread, the Nationalist government had opted for a publicly funded one-off bonus. The anticipated price rises had been absorbed by government for the first year with no additional cost to employers.
After that the price rises worked their way into the index without any tinkering of the mechanism. The same happened in 2004 when VAT was raised from 15% to 18%.
This time around political expediency seems to have got the upperhand over sensible economic management. And with a budget that has dished out the goodies across the board one would have expected government to stir away from upping the costs on employers.

From Lm0.50 to Lm1.50

Lawrence Gonzi yesterday night announced that instead of the Lm0.50 adjustment as calculated by the cost of living mechanism government was setting the weekly wage rise to Lm1.50 from 1 January 2008.