Wed | Apr 26, 2017

A case for public sector overhaul

Published:Thursday | March 5, 2015 | 3:00 AM

We are not without sympathy for Finance Minister Peter Phillips' intention to ask the International Monetary Fund's approval for a one-year extension of the time to reduce the government's wage bill to nine per cent of gross domestic product (GDP). The target, then, would not be met at the end of the coming fiscal year, but the next - 2016/17.

We understand the government's position in the face of negotiations with public-sector unions after a three-year freeze of basic salaries, which was preceded by three years of relative restraint, which were preceded by four years of freeze. In the event, real wages in the public sector have declined significantly. Workers and their unions, even when they appreciate Jamaica's fiscal situation, are, in the circumstances, less likely to demonstrate the level of restraint of the past.

So, while the demand for a 30 per cent hike over two years won't fly, Dr Phillips will have to do something better than annual increments. Further, having over the last two years to cover J$25 billion in previously negotiated but outstanding pay, slowing the pace at which the wage-to-GDP ratio, now estimated at 10.1 per cent, is reduced, may be accommodated. Additionally, keeping public-sector employees onside is perceived by the government to be crucial to maintaining support for its fiscally tough adjustment programme.

In any event, slowing the pace of the downward adjustment of salary-to-GDP ought not to derogate from the fundamental aim of the project: balancing the budget and reducing the government's debt, relative to national output. That, of course, depends on there being no compromise on the critical lever for achieving this end - maintaining a primary balance of 7.5 per cent of GDP. We perceive no such intention on the part of the government, and certainly not on Dr Phillips' part, although there can be no absolute certainty, given the emerging election cycle.

These points having been made, we, as should Jamaica, have reasons to be uneasy with this development.

 

Fiscal responsibility

 

First, the wage-to-GDP benchmark is set out in the fiscal-responsibility law, solemnly approved by the Jamaica parliament a year ago. We understand that economic policy can't be cast in concrete and that governments require room within which to respond to the exigencies of economies and markets. It is for this reason that many people during that debate opposed having fiscal-responsibility rules entrenched in the Constitution, thus making it difficult, if not impossible, for Government to react in an emergency.

Nonetheless, this development, which will require Dr Phillips taking an amendment to the law to Parliament, raises issues about the government's economic forecasting capabilities, and begs the question of what else they might have got wrong. There is also the potential for weakening confidence in the government's commitment to seeing through things, even when its undertakings are underpinned by law.

But of greater urgency is genuine public-sector reform, including, where necessary, making staff redundant. Jamaican governments have opted for the political easier route of salary freezes, rather than cutting jobs. That's a tourniquet which, for a time, stops the bleeding without healing the wound.