Social partners warn of unsustainable businesses, job losses
Charlot Zahra
There was a flurry of reactions by the social partners and political parties on Friday, all bitterly complaining on the lack of effective consultation by the Government about the introduction of the new utilities’ tariffs’ and calling for their revision.
All of them warned that if the water and electricity tariffs were implemented as proposed, they would lead to a significant rise in operational costs, rendering businesses unsustainable and job losses.
Speaking during a press conference on Saturday morning, General Workers’ Union (GWU) Secretary-General Tony Zarb called on the Government to abandon its plan to introduce the proposed tariffs.
Zarb said that workers will be hit on two levels. Firstly, they will have to pay more, therefore leading to a reduction in their standard of living. “Secondly, workers might have their jobs threatened as a result of the new tariffs,” he warned.
“With the Government’s proposals, all those who offer all kinds of services and all those who run a business will be forced to raise their prices, leading to a further rise in inflation,” Zarb insisted.
He said that in the past two days they spoke to various employers “and they told us without any hesitation that if the new tariffs come into force, they would have to stop a number of workers.
“Hoteliers and other investors even told us that they would be stopping the investment that they were going to do as well as close their doors for the winter season,” he warned.
Zarb said that if the Government persisted with its plans to raise water and electricity tariffs, “this would mean that the standard of living of families would continue to plummet, therefore workers would not have any alternative other than asking for a rise in wages.
“Is it not possible that the Government is not realising that what it wants to implement would lead to Malta losing its competitiveness, something which the Government has already spoken about various times?
“Or is now the Government not worried about the loss of the country’s competitiveness to order to get its own way on this?”
The GWU Secretary-General called on the social partners to “remain united and continue telling the Government that they are disagreeing with its proposals”
Speaking during a press conference on Friday afternoon, Union Haddiema Maghqudin (UHM) Secretary-General Gejtu Vella complained that the proposed increase in the water and electricity tariffs would create pressure “on families, on industry as well as on tourism.”
Besides, “no studies on the social and economic impact of these measures have been conducted.”
Vella explained that this was the second time in the space of few months’ that the Government had not consulted the social partners effectively about the utilities tariffs.
“On 28 July 2008 the MCESD had felt the need of asking for a meeting with the Prime Minister since the UHM and the other social partners were feeling that the consultation process was not being effective (on the raise of fuel surcharge),” he recalled.
Vella explained that in the five proposals about the revision of the utilities’ tariffs were presented at the MCESD last Wednesday, “only a few weeks before the Government announces the measures for next year’s Budget”.
Figures taken from the Government’s report on the introduction of the utility tariffs and published by the UHM on Friday show that a family of two persons will have an average increase of €7.21 a week, a family of four persons will have an average increase of €8.96 a week, while a family of five persons will have an average increase of €10.24 a week.
MAM President Martin Balzan said that the tariffs as proposed were “not acceptable as such a sudden increase would have major social implications for all income groups.
In principle, he explained, changes had to be more gradual, and if a removal of subsidies was necessary, this had to be done slowly and cautiously to avoid major jolts to the economy.
“The brackets proposed are too wide and perhaps should be increased so that a principle where essential use is subsidised by luxuriously or wasteful use of power. Furthermore the increase in price bands is too steep.
“A major revision is necessary as the tariffs now are completely unfair at present and could have catastrophic social and economic consequences,” Balzan told Business Today.
Speaking during a joint press conference with the Chamber of Commerce and the MHRA on Friday afternoon, Malta Federation of Industry (FOI) Deputy President Helga Ellul said that all of the options proposed by Government were “based on a fundamentally flawed approach to policy formulation which, if pursued, is bound to have severe adverse effects on economic activity in Malta.”
“All of the proposals aim at restoring the financial position of the utility providers – Enemalta and Water Services Corporation – in an immediate manner without any concern for the socio-economic implications of such an action.
“If this approach is pursued, there will be immediate unsustainable increases in tariff rates for industry and households, with severe adverse consequences for employment and income in our country,” she warned.
The FOI Deputy President said that the proposed tariffs would create “a sudden economic shock, which will directly affect the current and planned investment expansions decisions as well as general business confidence level in the economy.
“Clearly, we feel that there will be an impact on employment, as these proposed tariffs will threaten thousands of jobs. There will be an increase in inflation rates and slow down of the growth of the economy.
“Of course, due to fall in competitiveness, Malta’s ability to enhance exports and its capability to attract new investment will decrease,” Ellul said.
The employers’ said that the proposals came “at a time of international economic crunch and uncertainty of business and investment flows, from which, locally based companies, particularly the international ones, are surely being affected.
“Further, this is a time when enterprises would have already designed their 2009 operational budgets, including recruitment needs and plans in adjustment in wages,” the employers said.
Ellul said the increase in residential tariffs would create “greater pressures” on employers for compensatory demands by employees. “Therefore, the FOI questions the sensitivity and timing of proposals.
“We sincerely hope that Government does not insist to only consider the immediate financial sustainability of the noted utility corporations in isolation, but rather through a balanced-out approach through a serious economic assessment, whereby carefully-phased mitigation plans need to be introduced to avoid economic shocks,” Ellul insisted.
Speaking during the same press conference, FOI Vice-President Anthony J. Tabone warned that the sudden increase which the Government wanted to impose on companies that consume large quantities of electricity were unaffordable. “For some of the larger companies we are talking of increases in electricity bills ranging from €1.5 million to €10 million a year.
“On top of these expenses, the employers will now also have to face wage pressures from Unions, who are rightly concerned on the inflation that these new tariffs will bring about,” he added.
During the same press conference, some of the key manufacturers also complained about the proposed tariffs.
“Basically it is a disaster. Anybody thinking of expansion plans in Malta will find it very difficult, if not impossible, to justify making such an investment when considering initiatives like this from the government,” said Martin Hignett of Trelleborg Sealing Solutions.
Likewise, Julian Dimech of Baxter said: “This is a big blow for the industry and we definitely cannot afford it. It could even start to trigger investors to think about relocating.
The other employers’ organisation, the Malta Employers’ Association (MEA), called on the Government to respect of the spirit of social dialogue “if the Government expects the social partners to participate in finding solutions to the country’s problems.
In a statement issued by MEA Director-General Joseph Farrugia, the MEA expressed its dismay at “the poor consultation on Government’s intentions to revise the water and electricity charges to households and industry.
The MEA lamented that the social partners “have been completely left in the dark about the developments, which, if not amended, will have serious repercussions on companies, particularly manufacturing and hotels and may result in a significant loss of jobs.”
It objected to the “fast retroactive timing” of the change in tariffs and the removal of the capping, and insisted on immediate consultation to explore alleviating measures to mitigate the serious negative social and economic impact of the revised tariffs.
The MEA added that “given the current state of affairs in the international scenario, this certainly is not the right time to add to the existing level of uncertainty in the economic environment.
“The economy cannot afford sudden shocks such as those that were thrown on the table during the MCESD meeting of 1 October without conducting a comprehensive socio-economic impact assessment and to seek a packaged solution,” Farrugia insisted.
Malta Hotels’ and Restaurants’ Association (MHRA) Secretary-General George Schembri told Business Today that the Association was “very disappointed that it was led by Government to believe that the previous situation would not be changed and then, without any warning or consultation whatsoever, was presented with a set of criteria that will be extremely damaging to the industry.
“We cannot believe that the Government would not even consider this without serious consultation and an economic impact assessment,” Schembri lamented.
Schembri explained that the impact on the tourism industry as a result of these new tariffs would be three-fold. “Operational costs will increase tremendously due to the increase in tariffs themselves, the increase in cost of materials purchased from local manufacturing firms that will also have their costs increased and the impact of upward pressures on wages,” he said.
“Ultimately the MHRA believes that such an upward pressure on costs at a time when the industry is bracing itself for a potential drop in demand to our core markets due to the international economic situation, is going to lead to very serious problems in the industry.
“The MHRA does not exclude the loss of a high amount of jobs and closure of a number of hotels that simply will not be able to operate any more. We are already seeing this in the coming winter months in some areas due to international financial problems,” Schembri told Business Today.
Asked whether the MHRA had been consulted by the Government on the matter before the new utility tariffs were announced on Wednesday, Schembri did not mince his words. “No this was a total surprise to the MHRA. On the contrary, Government always led us to believe that there will be no change in this area,” he said.
Questioned as to whether they expected to be consulted before the new tariffs were announced, the MHRA Secretary-General was equally direct: “In the spirit of consultation as promised by Government, of course we did.
“Additionally our industry works with relatively long lead times, so any sudden increase in cost can never be immediately absorbed, plus at the present moment, we cannot afford to push our prices up due to the market getting weaker by the day.”
Asked about those aspects of the new tariffs as were proposed with which the MHRA agreed, Schembri said emphatically: “The MHRA has to make it abundantly clear that the changes proposed will lead to a very high level of job losses from the hotel industry. In light of this it cannot agree in principle with the change.
“The MHRA believes that the increases being proposed are simply not sustainable. It therefore disagrees in principle with any change whatsoever in this area,” he insisted.
Questioned as to how, in his view, the tariffs should be changed to make them more acceptable for the tourism industry in Malta, Schembri told Business Today: “If we want to kill off the tourism industry then this is the way to do it.”
He explained that the tourism industry “already operates in a situation where we experience a European cost base while the prices charged are still less than 60 per cent of those charged by our European counterparts.
“The average levels of operating profit locally are still far short of our European colleagues. Any pressure on the cost base will simply lead to more companies leaving the industry with the subsequent consequences,” the MHRA Secretary-General told Business Today.
The new power tariffs announced by the Government, which were announced by Infrastructure Minister Austin Gatt and Finance Minister Tonio Fenech on Wednesday, have led to an unprecedented show of unity by the social partners.
In a joint letter sent to Prime Minister Lawrence Gonzi on behalf of all the social partners on the Malta Council for Social and Economic Development (MCESD) on Friday, MCESD Chairman Sonny Portelli said in no uncertain terms that “there is no agreement at this stage about the measures described to us.
“It is particularly unacceptable that it is being proposed that these measures are being considered as having come into force as of 1 October as indicated in the media.
“On the measures themselves, the Council feels that it has been faced with a fait accompli,” the social partners said in their joint statement.
