Tinkering with the incomes policy

The incomes policy is central to the boring 134-page budget speech read by Minister of Finance Clyde Caruana on Monday. There are three specific elements to this.

The first is the cost-of-living adjustment (COLA), which this year amounts to €12.81 per week. It is an adjustment to the statutory minimum wage intended to, maybe, restore the minimum wage’s purchasing power. Over the years it has become very clear, that, this adjustment needs to be periodically recalibrated. This recalibration would entail updating the basket of goods and services on the basis of which the minimum wage is calculated, thus bringing it in line with current basic needs and requirements. This is now clearly long overdue. It is also being deliberately avoided.

As ADPD has stated many a time, when inflation is high, and the cost-of-living adjustment is substantial it would be appropriate if we do not wait until January for COLA to be paid up. It would be appropriate to consider a COLA mid-year payment thereby reducing the burden on wage earners.

The second element is the implementation of the recent agreement reached by the social partners as a result of which the minimum wage will be increased. The agreement reached within the MCESD framework provides for a four-stepped increase to the minimum wage: €8 as of next January, €3 as of January 2025, €3 as of January 2026 and a final €4 as of January 2027. This leads to a total projected minimum wage increase of €18 per week spread over four years.  This is in addition to the COLA adjustments due over the same timeframe.

This contrasts with the proposals resulting from the various CARITAS studies, the latest one being published for the year 2020. This CARITAS study is entitled A minimum essential budget for a decent living. It had then identified that a decent minimum wage for a family consisting of two adults and two dependent children was €13,947 per annum. This would necessitate a 40 per cent increase in the then minimum wage, which would work out at approximately an increase of €78 per week. A substantial increase, which clearly shows that the injustice of a low minimum wage has been allowed to accumulate over a number of years.

The contrast between the €18 minimum wage increase agreed by the social partners and the result of the CARITAS studies is staggering. Furthermore, the CARITAS study is detailed and meticulously justifies its conclusions as to what is required to ensure a decent quality of life. On the other hand, no one knows how the social partners arrived at their €18 increase over four years agreement. What did they take into consideration? What did they ignore? The agreed increase is definitely better than nothing, but it is still ridiculously low and without any known explanation as to how it was arrived at.

The social partners clearly ignored the CARITAS study. They also ignored another study which was presented to them by the GWU, Moviment Graffiti and the Alliance Against Poverty (Alleanza kontra l-Faqar-AKF). This study was presented to the MCESD during its sitting held on the 6th September 2023 and is entitled: A Proposal towards the Definition and Estimates of the National Living Income in Malta 2022.

This brings us to the third element of the incomes policy tinkering exercise. For the second year running the budget provides a temporary COLA adjustment which kicks off in times of high inflation. It has to be underlined that this temporary COLA adjustment has been created as a result of the failure of government and the social partners at MCESD to arrive at a decent minimum wage. The very fact that the temporary COLA will this year be offered to 95,000 households (with a total of 205,000 persons) proves the point that the minimum wage mechanism has failed miserably in providing an adequate safety net. With close to a half of the population being considered as being in need of this handout we need to ask questions as to who is benefitting from the recorded economic growth. The large numbers of those deemed to be in need of an additional handout are proof of the failure to regulate adequately the minimum wage. Offering titbits instead of a decent minimum wage is not on. But unfortunately, that is what the budget is all about.

The current government by handouts and subsidies started off as an emergency reaction but it is slowly being transformed into a preferred method of governing: one of continuous handouts and unsustainable subsidies.

Dependability on state handouts and subsidies is not a healthy sign of government. Clyde is slowly transforming the incomes policy into a policy of dependability on state handouts.

In order to make work pay, the minimum wage must be a decent wage. We still have a long way to go to achieve that objective. The studies referred to earlier show the way forward, far away from a culture of dependability which is getting worse with every boring budget. 

Carmel Cacopardo
ADPD Deputy Chairperson
Published in The Malta Independent – Sunday 5 November 2023