Finance Minister rejects updating Malta’s COLA mechanism after historic increase

There is not yet any indication that the cost of living adjustment (COLA) mechanism may be revised this year, with the Minister responsible making it clear that there are no discussions taking place to that effect, despite the many calls for tweaks if not outright overhaul of the system.

The COLA mechanism has taken centre stage over the last two years as inflation raised its head after a decade of relative price stability. The mechanism is meant to protect the purchasing power of workers’ wages from being eroded as the cost of living increases.

The high rate of inflation seen over 2022 and 2023 has led to large increases in the COLA, which was set at €9.90 a week for 2023 and €12.81 a week for 2024.

Private employers must increase their employees’ wages by that amount. When taking the employer’s contribution to social security into consideration, the total extra outlay over a full year is €566 per employee – amounting to a staggering €113 million expense for the local private sector.

Most business representatives have spoken out against the large additional expense caused by the COLA mechanism, with some calling for the increase wages to be untaxed and others calling for a wholesale revision to the system, amidst warning that the mechanism may lead to a wage-price spiral.

However, Finance and Employment Minister Clyde Caruana has given short shrift to these arguments, pointing once again to the large subsidies extended to the price of energy and fuel, and further arguing that it is now time for companies to do their bit and take a hit to their profits to ensure that their employees’ standard of living does not degrade.

It was against this backdrop that the Shadow Minister for the Fight Against Rising Cost of Living, Ivan Castillo, asked a parliamentary question to confirm whether there will be a new COLA mechanism. Minister Caruana replied that “any change to the COLA mechanism needs to be agreed on by the social partners, and will be announced if or when it is announced.”

Asked to clarify whether any discussions have taken place to determine a new COLA mechanism, the Minister made it clear that “there are no discussions taking place in this regard.”