Malta Chamber calls for tax-exempt subsidies, warns against ‘suicidal’ wage hikes

The Malta Chamber of Commerce asked the government to reconsider its strategy for tackling inflation, calling their current strategy “suicidal at worst,” potentially putting the country “on the path of implosion”.

By next January, the government’s Cost of Living Adjustment (COLA) mechanism is expected to increase wages to almost €13 per week following massive increases in inflation felt across most countries. The mechanism is linked to the cost of living measured using the Retail Price Index.

In a press release on Tuesday, the Chamber said a revision of lower-income tax brackets allowing for wage subsidies to be fully tax-exempt would “improve the purchasing power of lower income groups without fuelling a wage inflation spiral.”

The Chamber warned against the planned “series of wage hikes… [which] will accelerate inflationary expectations” and limit the government’s ability to respond to unpredicted economic changes.

The Chamber said Finance Minister Clyde Caruana’s warning of continued inflation issues, despite “other countries expressing hope that inflation will be tamed,” is “no surprise” if the government’s approach “ignores fundamental economic principles and puts our country on the path of implosion.”

In their statement, the Chamber explains it does not make sense to compensate people for increases in the cost-of-living through COLA, just to divert part of those increases into government coffers.

“These are significant [COLA] increases that are not being matched by productivity increases,” it said, noting how the mechanism is based “strictly on basic pay”, which “grossly underestimates both labour costs for employers and take-home pay.”

“Increasing minimum wages is not a silver bullet,” the Chamber said, claiming it risks an inflation spiral and calling for “extreme caution.” It said such a series of wage hikes “is naive at best, suicidal at worst.”

Commenting on Malta’s blanket subsidisation of energy costs, the Chamber said Malta’s “inflation rate, excluding energy, is substantially higher than the EU average, particularly in services”, calling it a reflection of a “very tight labour market” which is “necessitating the employment of people in jobs for which they lack the desired skills and qualifications.”

While the Chamber said Malta “has the lowest percentage of full-time workers on minimum wage in the EU,” The Shift has reported how one-sixth of Malta’s workforce earns under €1,000 per month and around 2,300 full-time workers earn the minimum wage of just €835 per month.

Malta’s economy relies heavily on low-paid jobs that employ foreign workers who are statistically more at risk of poverty. While Prime Minister Robert Abela has pledged that the government will reduce the number of foreign workers, the mushrooming of low-paid jobs remains unaddressed.

Malta’s low wages are felt in an increasingly unaffordable property market and compound issues created by an increased cost of living, especially inflation in necessities.