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Editorial: Removing the bloat from public sector

Published:Monday | June 1, 2015 | 12:00 AM

It is time the Government and trade unions fully acknowledge and act on what they have long known: that the public sector is bloated and inefficient, which is a significant part of the reason why their members are poorly paid.

The solution is not a wage freeze, or measures akin thereto. It lies in a genuine overhaul of the public sector, including a resultant cut in employment numbers, perhaps as many as 15,000 jobs. The Government, in the circumstance, would be genuinely able to pay more. In that respect, Audley Shaw, the shadow finance minister, was close to articulating something right on economic policy.

This issue of the size of Jamaica's public sector, which employs close to 120,000 people, and what they are paid, is now a matter of public discussion because of tense wage negotiations between the Government and public-sector unions after a four-year pay freeze. The Jamaican Government has used such freezes since the early 2000s as part of its strategy for dealing with fiscal imbalances, which, politically, is far easier to sell than job cuts.

In that context, it is understandable why it is a scheme to which the Simpson Miller administration fell back under its agreement with the International Monetary Fund that requires the Government to run a primary balance of 7.5 per cent of gross domestic product (GDP) in order to begin to put the country's debt - now at 139 per cent of GDP - on a downward trajectory. The 2013 agreement also requires the Government to lower its wage bill, which used to be nearly 12 per cent of GDP, to nine per cent, which is still to be achieved.

The problem with wage freezes, however, is that they don't solve the fundamental problem, as Peter Phillips, the finance minister, and his colleagues in the Government are discovering. The Government has offered pay increases of five per cent, a rate that is above last year's inflation and in the range of projected price movements for 2015. Not irrationally, workers want to adjust for the slippage they suffered over the years of the freeze. Demands have averaged around 30 per cent for two years, although some asked for as much as 100 per cent.

 

BALD TRUTH

 

The bald truth is that significant wage hikes, in the absence of more revenue, are unaffordable. The J$165.2 billion that Government set aside for wages represents more than a quarter of what it projects to spend and 43 per cent of what it expects to collect in taxes. What is left is insufficient, in the absence of heavy borrowing, for the Government to meet all its other obligations, including J$132 billion on interest costs.

The elimination of 6,000 public-sector posts from the Establishment over the past two years doesn't fundamentally address the issue of live bodies who receive salaries. We agree that removing jobs can't be an arbitrary exercise, but, rather, as Mr Shaw suggests, would have to be a forensic one, aimed at excising those who are unnecessary and a drag on efficiency.

Generating economic growth and government earnings is, on the face of it, the solution. But it doesn't deal with the matter of having too many people doing too little, or having a public sector that is not only well-paid, but is efficient and entrepreneurial, seeing itself as a partner in the process of growth.