As a picturesque Mediterranean island nation Malta has always been known for its stunning landscapes, rich history and a generally high quality of life. However the rising cost of living has been a concern for many Maltese residents, concerns shared with nations across the globe. On the 30th October the Maltese government announced an important development in the national budget — a substantial increase in the Cost of Living Allowance (COLA).

Let’s explore what this increased COLA means for the people of Malta, how it impacts business owners and what to expect in 2024 based on recent updates.

Understanding Malta's COLA

The Cost of Living Allowance (COLA) is a financial provision in the national budget aimed at assisting residents in dealing with the increasing costs associated with daily living expenses. This allowance is designed to provide financial support to individuals and families who may be struggling to keep up with the rising cost of housing, education, healthcare, and other essential services.

Key Features of Malta's COLA

Malta's COLA has a long history. It was introduced to provide additional income to workers to help them cope with rising living costs, particularly in relation to the cost of essential goods and services. The COLA system is based on the Retail Price Index (RPI), a measure of average price changes of essential goods and services, calculated and published by the National Statistics Office of Malta. It is paid by employers as part of their workers' salary. If your team runs into the hundreds, it could have a significant impact on sudden hikes in your salaries.

The government has committed to reviewing and adjusting the COLA annually, based on changes in the cost of living. This ensures that the allowance remains relevant and effective in addressing the pressing financial concerns of the population.
In a recent update, Finance Minister Clyde Caruana announced that the COLA for 2024 will amount to €12.81 per week, marking a significant increase of nearly 30% compared to the €9.90 provided in 2023. This specific allowance aims to provide financial relief to individuals and families, helping them manage their budgets and maintain their standard of living despite the rising expenses.

Employers have expressed concern over the increase. In fact at the end of September, the Malta Chamber proposed making COLA non-taxable. Currently, workers are taxed on all their income, including their COLA supplement.

How does this impact business owners and HR leadership teams?

The introduction of the COLA for 2024 also has notable implications for business owners in Malta. As the COLA is a legal requirement, business owners will need to allocate funds to cover these additional expenses, resulting in increased labour costs.
When asked whether COLA was still the best formula to cope with the cost of living, following concern that a high adjustment would continue fuelling inflation, Finance Minister Clyde Caruana emphasised that it was the best way to compensate for the erosion of purchasing power. He brushed off concerns that it could fuel further inflation, arguing that there was no evidence of a wage-price spiral developing.

He explains: ‘I expect a significant part of the increase in labour costs, which some businesses are going to experience, to be absorbed by their profit. So while prices and profits have increased over the past few years, as wages start to increase including as a result of COLA and further labour tightening, I would expect that the wage bills of companies to start increasing and employers to make up for that by lowering their profit margins’ he said.

While the COLA may present challenges, it also offers business owners the opportunity to gain a competitive edge. By providing support to employees through adjusted compensation packages, businesses can attract and retain top talent in a challenging job market. Additionally, the COLA can contribute to economic stability by reducing turnover and its associated costs.

While it poses challenges and opportunities for business owners, the COLA remains a crucial element in safeguarding the well-being of the nation's workforce and fostering economic stability. With the recent increase to €12.81 per week, Malta's COLA continues to evolve in response to changing economic conditions, providing essential support to workers in the face of rising living costs.

The questions business owners and HR teams now have to ask themselves is whether they have considered the additional administrative work that comes with COLA adjustments and whether HR and finance teams are equipped to handle this efficiently.

Malta's COLA for 2024 is a significant development that every business owner should be prepared to navigate. While it poses challenges, it also offers opportunities to enhance your business's competitive position and contribute to economic stability. By addressing these questions and developing a strategic approach, you can ensure that your business thrives in this evolving economic landscape.

How do you see COLA impacting your business's overall financial health and long-term stability?
What steps will you take to ensure your company remains resilient?