They say history tends to repeat itself. At the outbreak of World War I in 1914, many were under the illusion that it would be a quick deal. German Emperor Wilhelm II promised his departing troops in August 1914 that they would return before the autumn leaves fell. As they say, the rest is history. The First World War lasted four and a half years, claiming some 10 million lives.
Fast forward to 2022 and we are six months into the Russian-Ukrainian war and we have no idea how long this war will last. What we know so far is that this has now turned into a war of attrition on various fronts, not just on the battlefield, with clear attempts to use economic sanctions and the use of strategic resources as part of the strategy of attrition warfare.
With each passing day, it becomes more and more evident that the economic strategy of any country must be based on ensuring that its economy and financial resources are ready to withstand the effects of this war in the long term rather than in the short term. .
In early August, the IMF went so far as to advise European governments to stop having broad support for rising energy costs and turn to targeted relief for low-income households. who suffer the most from rising energy bills.
The IMF argues that general price suppression measures, including subsidies, tax cuts and price controls, only delay the necessary adjustment to the energy shock by reducing incentives for households and businesses. save energy and improve efficiency, while ever-rising energy costs will continue to squeeze the limited fiscal space available to European governments as high energy prices persist and are expected to persist for some time time.
It is in this context that the proposals put forward by the Chamber of Commerce in the context of the preparation of Malta’s 2023 budget should be considered. These are not normal times, and we should not decide Malta’s economic strategy using a ‘business as usual’ mindset. The current international economic situation triggered by post-pandemic disruptions but mainly by the Russian-Ukrainian war has created a set of economic situations akin to a so-called “perfect storm”.
While the government has done its best to cushion Malta on energy and soaring fuel costs, we have to ask ourselves how long can the government continue to subsidize in the longer term? Should the government continue to subsidize energy costs for everyone, regardless of consumption level?
The proposal put forward by the Chamber to cap the general energy subsidy at a certain level aims to strike a balance between reducing the negative impact of rising energy prices on the economy while allowing a possible modification of consumption habits by applying market energy tariffs for those who consume above a certain level of energy.
This is the time for true leadership-Silvan Mifsud
We would lose an opportunity to change mindsets and consumption patterns if we did not use the current energy crisis to make the much-needed quantum leap to more sustainable energy sources.
Shift some of the savings from subsidy spending that the government would have, if it passed the House energy consumption proposal, to then provide better subsidies to households and businesses that invest in energy solutions. renewable energy, would certainly help make that quantum leap.
If the pandemic has taught us anything, it has taught us that a crisis can serve as a catalyst for change, just as the pandemic has served as a catalyst for change in the labor market and digitalization.
The same goes for the House proposal on the infamous cost-of-living adjustment. The last thing we need is to have policies and measures that create new internal inflationary pressures. On the contrary, the current reality should make us think about whether our COLA mechanism needs to be modified or refined, as it is probably not the ideal tool to have during periods of high and sustained inflation, which we seem to be facing for a time.
Malta faces the reality of a very tight labor market. As a result, wages increase due to the basic microeconomic principles of supply and demand. This is also apparent from the average wage statistics published in the Labor Force Survey. In the first quarter of 2019, the last pre-pandemic year, average wages increased by around 3% compared to the first quarter of 2018.
In the first quarter of 2022, the average salary increased by approximately 5% compared to the first quarter of 2021, the increase being well above that of various sectors. Supplementing the wage increase with a large COLA increase will be like throwing gasoline on an open fire – pushing inflation even higher.
All of the above reasons should lead Maltese policy makers to give further consideration to the House’s proposal that a COLA increase should only be given to those who have not received a salary increase equivalent to from January 2022. The House COLA proposal is not for employers trying to dodge an expense. It is intended to cope with the current circumstances in a sustainable way.
The bottom line is that we should face reality head-on. Government and employers do not have a bottomless pit of financial resources, in which wages can keep rising endlessly or energy subsidized at all costs, especially since inflationary pressures are likely to last for some time. time.
Now is the time to take stock of the particular economic situation in which the world finds itself. Now is the time to exercise real leadership. It’s time to look ahead and have the courage to change what needs to be changed to stay afloat in such troubled waters.
It is time for the MCESD to really come together and consider an economic strategy as a coherent whole, rather than a sum of horse-trading of sectoral interests. If we don’t, the long-term COLA – Costs of Lack of Leadership, will have long-term adverse effects for all, far worse than the hardships of inflation.
Silvan Mifsud is Chairman of the Family Business Committee of the Malta Chamber
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