Issue link: https://maltatoday.uberflip.com/i/416739
maltatoday, SUNDAY, 16 NOVEMBER 2014 13 mechanism that has kept industrial peace. Before putting on his ministerial hat, Scicluna the economist argued for a revision of COLA that would tag the annual salary increase to produc- tivity, rather than inflation. He flip- flopped in 2013 on the issue when he proposed changes to the mechanism to better reflect Malta's productivity and bring it in line with EU expecta- tions, before backtracking 24 hours later to say the government did not have this on its agenda and was not proposing any changes. "The COLA today is being criticised for being so low when in the past it would be criticised for being so high… all this talk about productivity essen- tially is, 'it's too high for us to be com- petitive'. We've come to a year where COLA is too low for the unions' liking or those on the minimum wage," Sci- cluna says. The irony is that in the year where the 25% cuts in energy prices have pushed inflation down, it will be the low-income earners who actually use less energy in the first place, who are being hard hit by the low COLA. "COLA mirrors inflation from the retail price index… is the weighting out of date? Yes, because we should carry out a household budgetary sur- vey. But this would give more weight- ing to new goods, which normally are more competitive and lower-priced. So it won't increase the index, but it's important to have a more realistic in- dex. "The other issue is minimum wage earners and pensioners. Do they have enough support? You have electricity, gas, medicine, the price of services, and whatever the government gives. If we provide this year, a €4,000 av- erage cost of free childcare to each family, that's also income. We should not just be measuring wages but also income in kind. "Having said that, the government is aware that COLA is below the ex- pectations of many people, and we're going to address it." Conditional cash transfers are also big on Labour's agenda, which has been determined to 'make work pay' by encouraging less dependence on social benefits through tapered pay- ments for those beneficiaries who enter the labour market; and more re- cently, tagging mandatory school at- tendance to a supplementary income for families living on the edge of the poverty line. "Benefits take up one- third of our Budget, pensions and all… it is important to keep track on its distribution. In Malta we have free education, stipends to students, free medicine and health, free childcare… this is the full package, and COLA also comes into this ambit." Why wouldn't a Labour govern- ment – the party which proposed a living wage – increase the minimum wage? "Because Malta is a small and open economy that has to compete for its exports. Portugal, Spain, Italy, and Greece have a minimum wage that is pretty much equivalent. The northern countries have double our minimum wage. We could double our minimum wage but we would not be competi- tive with the countries near us. "Minimum wage is paid to people with no skills whatsoever – so to im- prove their lot we have to give them skills, better education. The govern- ment has a €3 billion budget to dis- tribute, which we must make sure spreads also to the lower end, with- out interfering in the labour market, which pays according to productivity. If we play with our competitiveness, we would be playing with our eco- nomic growth." Scicluna says that around 450 long- term unemployed have entered the labour market thanks to tapered benefits and active labour market policies, but discounts the notion that this might also push them into pre- carious jobs. "If they are unskilled they cannot take top jobs. But the fact that they regain self-respect… I wouldn't want to give a caricature of someone sit- ting on a sofa watching TV all day or sitting in a coffee shop, but you can say that your income and self-respect suffers from begging from the State. The fact that someone is earning it and still keeping the benefits since it pays for him to work, then you are encouraging them to participate in the labour market over the three-year period of tapered benefits." But is this also not the major part of your social spending: the real expense is pensions… "Well, you'd be surprised. There are well over 6,000 single mothers in Malta getting a benefit package of up to €8,000-€9,000… a €50 million ex- pense. There are benefits for people in need, unless they are abusing. But you can't cut benefits because one- third of them are abusing. So when we talk about benefit dependence it is not minor. "People are upset about people abus- ing of their benefits. Perhaps the scale of abuse is more than one thinks." Why are we talking about single mothers and 'loafers' as scapegoats on the entire benefits system? "I don't want to use that language because as an economist I believe every person is rational: they don't work because it doesn't pay. I believe them! It doesn't pay because they lose all the benefits, because the State is telling them that it will take all their benefits back when they go out to re- ceive a minimum wage. So I change the system and make them an offer they cannot refuse, making them earn more to go out to work." Wouldn't the State have less stress on its coffers if it introduced a man- datory, second-pillar pension where both employers and employees con- tribute to a pension fund? "We have introduced a voluntary pension, and we will see where we are. We can increase the incentives over the years. Let's see how the €4,000 scheme fares, especially for young people." Interview EDWARD SCICLUNA presents tomorrow's Budget with a confident projection of lower spending and new revenues. His biggest challenge will be the sustainability of public finances but money from the sale of passports will be a welcome buffer system of dependency PHOTO BY CHRIS MANGION