Employer bodies have rejected a proposal by General Workers’ Union Secretary General Kevin Camilleri to introduce twice-yearly cost-of-living adjustments, warning that more frequent payments would make business costs harder to predict and could fuel further price increases.
The Malta Chamber of Commerce, Enterprise and Industry, the Malta Employers’ Association (MEA) and the Malta Hotels and Restaurants Association (MHRA) all opposed the proposal, although there was greater openness among the three organisations to another element of Camilleri’s argument: whether the basket used to calculate COLA still accurately reflects what households spend money on today.
Camilleri had proposed in an interview with The Malta Independent that COLA should be adjusted every six months rather than annually, arguing that the mechanism needed to respond more quickly to rising living costs and the financial pressures facing workers. He also questioned whether the basket underpinning the calculation adequately captures modern household expenses, pointing to sharply higher rental costs and the growing importance of services such as mobile phones and internet subscriptions.
The employer organisations, however, said the annual system provides businesses with an important degree of certainty.
MEA Director General Kevin Borg said the association was not in favour of an interim COLA payment because it would introduce additional uncertainty into companies’ annual budgeting.
He also pointed to practical difficulties in operating a system in which the adjustment could change during the year.
If COLA for the first six months were based on the previous September’s Retail Price Index, while the second payment was calculated using March data, higher inflation would automatically result in a larger second payment.
But a fall in inflation could create a different problem, Borg said.
A lower COLA for the second semester could require a downward adjustment to salaries in which the COLA had already been incorporated, something he described as “not ideal”.
The Chamber took an even stronger position, arguing that while the GWU proposal was intended to provide workers with more immediate relief during periods of high inflation, doubling the frequency of adjustments would be “economically counterproductive”.
It said employers plan their budgets, pricing and financial forecasts over a 12-month cycle, particularly SMEs operating on relatively narrow margins.
Moving to twice-yearly adjustments, it argued, would create unpredictable mid-year increases in labour costs.
The Chamber also warned that without corresponding increases in productivity, higher mandatory wage costs could feed directly into prices.
Businesses in retail, services and hospitality could be forced to raise prices to absorb increased labour costs, creating what the Chamber described as a wage-price spiral that could ultimately erode the purchasing power gains COLA was intended to provide.
It stressed that COLA was designed as a statutory macro-economic stabilisation mechanism rather than a real-time inflation tracker or a replacement for wage growth resulting from improved skills and productivity.
MHRA President Tony Zahra similarly defended the annual system, arguing that one of its major strengths was the certainty it provided businesses.
COLA had allowed companies to enter into contracts lasting more than a year knowing that wages would not fluctuate every few months, he said.
A move to twice-yearly adjustments would undermine that advantage by making it more difficult for businesses to project their costs.
For Zahra, the predictability offered by the current system has been an important part of Malta’s economic model.
There is, however, more common ground between the employer organisations when it comes to the composition of the COLA basket.
Borg said the MEA supported maintaining an updated list of goods and services representing the spending patterns of a typical household.
Consumer habits change over time, he said, and this should be reflected in the statistical weightings used to measure inflation.
The association nevertheless stressed that mobile phone services and internet subscriptions already form part of the current basket.
Zahra was also open to revisiting the basket, saying the issue had been discussed over the years and that it might now be time to examine whether changes were warranted.
Any changes, however, should be agreed upon by government and all the social partners, he said.
The Chamber was more cautious, stressing that the Retail Price Index basket is based on empirical data collected through the National Statistics Office’s Household Budgetary Survey and reflects average spending patterns across the economy.
It specifically opposed the idea of incorporating private residential rental prices into a universal mandatory wage index.
Rental inflation, it argued, affects particular sections of the population differently and linking national wage increases to housing costs could create distortions without addressing the underlying problems in the property market.
The Chamber also warned that changing the weighting mechanism without rigorous statistical justification and agreement at the Malta Council for Economic and Social Development could undermine the tripartite consensus behind the current system.
The debate ultimately comes down to competing pressures.
For workers, the argument for more frequent COLA payments is straightforward: when prices rise rapidly, an annual adjustment can leave wages trailing behind the cost of living for months.
For employers, however, more frequent mandatory increases mean less certainty over labour costs and potentially greater difficulty in setting prices, signing contracts and competing internationally.
Borg stressed that COLA is ultimately paid by employers, rather than government, and that salary increases generated by COLA are not necessarily matched by productivity gains.
He warned that particularly large adjustments could prove extremely difficult for major employers serving export markets, where margins can be tight and businesses have limited control over the prices they charge.
The Chamber raised similar concerns for manufacturing, maritime and technology companies competing internationally. Unlike businesses operating solely in the domestic market, exporters cannot simply pass higher wage costs on to overseas customers.
It also warned that more frequent statutory increases could reduce the scope employers have to reward workers through performance-related salary increases, bonuses and career development.
The MEA has proposed a different way of reforming COLA. Rather than moving to twice-yearly payments, it has previously suggested introducing minimum and maximum annual increases.
One possible model would set the annual adjustment within a range of between €2 and €6 per week. Every five years, the total COLA that should have been paid would then be compared with the amount actually paid, with any difference settled subsequently.
The proposal is intended to smooth out sharp fluctuations while ensuring that employees ultimately receive their full entitlement.
The Chamber believes, however, that the bigger issue facing Malta is not the mechanics of COLA but weak productivity growth.
It cited Eurostat figures showing that real labour productivity per person rose to 225.8 in Ireland and 130 in Denmark in 2025, compared with 103.6 in Malta. Malta’s figure had peaked at 109.6 in 2019 before falling during the pandemic.
The Chamber argued that wages cannot continue to rise sustainably without corresponding improvements in productivity and called for greater investment in digital transformation, automation and artificial intelligence, alongside worker upskilling.
