The Malta Chamber of SMEs is calling for a discussion aimed at reforming the Cost of Living Adjustment (COLA) mechanism, as part of its proposals to the government for the coming Budget.
“Given the discrepancies observed in the past ten years, it is imperative to re-evaluate the methodology used to calculate COLA and make necessary adjustments to ensure a more accurate reflection of inflation rates. The revision process should involve comprehensive analysis and an exercise aimed at reaching a social agreement between social partners and engages the relevant stakeholders,” its document containing proposals for the upcoming Budget reads.
The Chamber says that the COLA has been in place for several years without significant updates, “and there is growing evidence that it is becoming more difficult for the mechanism to adequately addresses the needs of various social classes. Therefore, a comprehensive reform of the COLA mechanism is essential.” It said that it is essential to engage field experts to conduct a comprehensive analysis of the existing system.
Consideration should be given to varying the current compensation system to levitating it towards more of a means tested system that would better address societal needs, the Chamber of SMEs said.
“Following on the above-mentioned point, the system could be even more aggressive in certain respects and compensate lower income earners with a higher COLA percentage, ensuring that those most vulnerable to inflationary pressures receive adequate compensation to maintain their purchasing power. Beyond a certain income threshold, COLA does not significantly affect individuals’ spending power or quality of life. Therefore, high-income earners (Euro 60K +) should contribute to alleviating this burden by receiving a reduced or no COLA adjustment.”
It also made proposals regarding the distribution of the COLA burden. “Recognising that inflation is a national and international issue not solely attributable to employers, we advocate for distributing the burden of COLA across all businesses, rather than solely on those employing workers.” It said that introducing the concept of a COLA fund, “funded by contributions from businesses as a percentage of their annual revenues, would enable a fairer distribution of the cost burden. This would include all registered enterprises, including foreign-owned and holding companies. Once spread across a wider spectrum, businesses would have to pay a relatively small contribution.”
During the press conference, the Chamber of SMEs also said that there is no room for governmental interference in business for example in particular markets. They said that government’s interference may compromise Malta’s competitivity in a difficult time.
President of the Malta Chamber of SMEs, Paul Abela, said that it is not the government who should decide on matters of business, such as deciding which sector has added value, and shouldn’t intervene. He said that at most, it may do so through Malta enterprise since as things stand, following the economic boom with an influx of profit, the country is set to face serious foreign competition and government intervention in the market would compromise Malta’s success.
Chamber of SMEs Council Member Beppe Muscat said that the Budget proposals fall under four pillars.
Muscat said the first was incentivising investment since small businesses do not receive much investment from the private or public sectors. He said that the public has a perception of business that it is not “genuine” when in truth, “the absolute majority is genuine, it employs many people and solves social problems.” He added that the latest SME barometer found that SMEs are concerned about investment.
Muscat said that for this reason, they proposed the reduction of the corporate tax rate, currently standing at 35%, amongst other things on condition of compliance. He said that such proposals are intended to be sustainable, leaving more money in the hands of businesses, whilst addressing the problem of compliance. Furthermore, he said that they are intended to address the “anomaly” of the “unfair playing field” for the Maltese regarding foreign businesses.
Muscat made it clear that the Chamber does not support those who receive frequent direct orders and unfair tenders but represents “genuine” business. For this reason, he said that the proposals advocate for the best quality as opposed to the best price when it comes to tenders. Other proposals included some aimed at small businesses as well as a Public Procurement Ombudsman.
Muscat said that the second pillar centres around business turnarounds, pointing out that some small businesses are still recovering from the hit they took in the COVID period. He explained that these businesses find no support from the private sector and wariness from the banks.
In light of this, Muscat said that they proposed a ‘Business Turnaround Grant’ for such businesses to allow them to hire experts to help them restructure and make a good turnaround, showing promise of being profitable once again and safeguarding employment.
Muscat said that the third pillar focused on micro-enterprises (businesses employing less than 10 people) and small businesses which make up over 99% of the business landscape in Malta and are important local employers. He said that despite this, such businesses generally feel forgotten after the yearly Budget despite their importance to the economy.
For this reason, Muscat said that they proposed a permanent secretary for this purpose and to address the needs of small-businesses and the self-employed. He said that they also proposed to make grants and schemes more accessible to small businesses for example, the highly successful Micro-Invest Scheme, and so increase tax credit.
The final pillar which addressed the changing work landscape, was based on research which found that 47% of jobs will cease to exist and 85% of future jobs are yet to exist, due to the rapid advances in technology, Muscat said. He pointed out that such a great change must be anticipated and turned into an opportunity by prepared stakeholders.
Muscat said that for this purpose, the Chamber proposed a taskforce focused on this change that may eventually issue a national and holistic vision that involves everyone, emphasizing that it cannot be partisan.
Muscat said digitization needs a change in Maltese mentality for which they proposed grants for the Maltese to attend international conferences so that Maltese businessmen can bring knowledge back from abroad and follow international trends. In the same vein of digitization, the Chamber proposed digitization of tax ahead of an EU directive which will enforce it by 2028.