Thu | Aug 17, 2017

Editorial | Tackling the wage bill

Published:Sunday | November 20, 2016 | 11:00 AM

Who remembers that there is someone in the Government named Ruddy Spencer? He's a minister in the Ministry of Finance with responsibility for the public service, including, we suppose, leading the reorganisation of the public sector and negotiating wages with employee unions. Insofar as he has been doing that, it has been happening very quietly.

But Mr Spencer's approach to his job, if he is to do it properly, will soon have to change. For while we do not expect a cacophonous engagement, he and other members of the Holness administration will have to now articulate a broader and clearer comprehension of the Government's wage and public-sector employment policy if they hope to maintain consensus around Jamaica's economic reform programme. The issue is that Jamaica is entering another politically sensitive phase of its arrangement with the International Monetary Fund (IMF).

Under the old IMF agreement, from which the country is now transitioning, major attention was paid, with significant success, to fiscal containment and macroeconomic stability. The Government's debt, as a percentage of GDP, has declined sharply; the Budget is balanced; the current account deficit is now manageable; inflation is low; and growth has returned to the economy.

But public-sector reform, including an undertaking to lower the public-sector wage bill, as a ratio of national output, was also part of the extended fund facility, though not as rigorously addressed as the fiscal criteria. For instance, in 2010, when the Jamaican Government entered an agreement with the IMF, the wage bill was close to 13 per cent of GDP. It was to have been reduced to nine per cent. However, a real expansion, rather reduction, of the Government's wage bill contributed to the collapse of that pact.

 

Headway made

 

There was some headway on wages during the four-year tenure of the People's National Party. It is now 10 per cent of GDP. The time to reach the benchmark target was, however, deferred. Now it is firmly set under the new US$1.7-billion standby arrangement by the 2018-19 fiscal year.

Reducing that wage-to-GDP ratio could include the displacement of public-sector jobs. So, it is not an undertaking that governments, including this one, take to easily. But in Jamaica's circumstance, it is an issue of significant merit.

In the current fiscal year, for instance, the Government projects to spend around J$170 billion on wages and salaries, excluding other compensation and pension. That amounts to approximately 34 per cent of projected expenditure and 38 per cent of tax revenues. When the wage bill is added to interest payments on the country's debt, it amounts to 69 per cent of expected tax earnings, or, put another way, after paying wages and interest costs, the Government is left with under J$200 billion to meet the rest of expenditure. In other words, it has little discretionary room within which to operate.

The upshot: It crimps on spending on current expenditures, like buying supplies for hospitals and schools or spending on citizens' security and justice, of public infrastructure - all of which are crucial to enhancing growth. That shows in rutted roads, poor garbage collection, increased crime, and so on.

There can be disagreements on strategy, tactics and sequencing for achieving these goals, but there is no doubt about the efficacy of the policy. It is for the Government now to make coherent and cogent arguments in its favour.