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Both sides of the argument stood by their own reasons; the state enterprise personnel naturally tried to improve their income while the opposition saw that it was not proper to increase such an allowance during a period of economic recess.

On this issue, if we adhere to the correct concept of the cost of living allowance, we should be able to find a proper argument that fits the ongoing economic situation.

Normally, government offices and state enterprises increase salary once a year. Records show that an annual increase for state enterprise personnel averages about 7 per cent in the normal year when the rate of inflation is in the normal range around 3 per cent. This implies that within an increase of 7 per cent, the 3 per cent is to compensate for the reduction in real income while another 4 per cent is for work performance and efficiency.

An annual increase of such magnitude during a year of normal inflation has been accepted by all parties concerned.

However, in a year when there is a fast increase in the price of goods and services and the rate of inflation is abnormally high, for example 9 per cent, an annual increase in salary of only 7 per cent would not be adequate to compensate for the reduction of real income and there would not be any reward for good work performance and an increase of efficiency by any means. In such a case, some private corporations could choose to increase salaries at a rate higher than the inflation rate, such as 12 or 13 per cent.

 Nonetheless, government offices and state enterprises, bound by certain inflexible rules, cannot increase salaries beyond an average of 7 per cent and have to resort to an increase in the cost of living allowance instead. Some private enterprises also resort to an increase in cost of living allowance instead of increasing salaries at a rate higher than normal.

It has been observed that in any year that the price of goods and services and the inflation rate are abnormally high, employees would typically demand an increase in income to compensate for the higher cost of living.

Government offices and some private firms usually respond by an increase in cost of living allowance at an amount agreeable to all parties concerned. On the contrary, any year that the inflation rate is low, there is normally no demand for an increase in cost of living allowance since there is no justification for such a demand as an annual increase of salary already compensates for normal inflation.

The recent demand for an increase in cost of living allowance by state enterprise personnel is therefore quite untimely - since the inflation rate is currently negative - and the whole year shows a very low inflation rate, if not negative. There is absolutely no justification whatsoever for an increase in the cost of living allowance. The forthcoming annual increase of salary by a range of 7 per cent this year would generate an increase in real income by almost 7 per cent which is already higher than other past years when the increase in real income was always reduced by a normal rate of inflation (say 2 or 3per cent).

Due consideration should be made that, during this year, a number of employees in the private sector have been laid off due to the reduction of production resulting from the global economic crisis as well as crises in the economies of our major buyers.

It will be very unfair if employees of state enterprises were to be compensated by an increase in income beyond a normal annual raise when employees in the private sector are being laid off.

During this time of economic recess, it is lucky enough for anyone who can still maintain a job without reduced compensation, and exceptionally lucky with an annual increase at the same rate applied in the normal year when the inflation rate is higher.

If they still ask for more and the government decides to go along with their demands, it would be unfair to other parts of society.

I agree with and support the position of the Minister of Finance in opposing such an increase in cost of living allowance.

However, that he does not agree because state enterprises propose an increase in unequal amounts seems to be an illogical argument.

Why not say it out loud and clear that the increase in cost of living allowance this year was irrelevant as the prices of goods and services in general had not increased noticeably and the inflation rate was very low. I believe that such a rationale would attract more public support.

Until next Monday