Editorial | Of wages and growth

When Nigel Clarke, the finance minister, closes the debate on the Government’s budget on Tuesday, there are two significant issues he must address – and clarify.

One is about the wage agreement he signed with the teachers’ union a week ago, including what implications, if any, it might have on projected fiscal outturns in the coming, but more importantly for the 2024/25 financial year and beyond.

The question is pertinent in the context of the administration’s ongoing salary talks with some categories of public sector workers, and the last-minute concessions that Dr Clarke may have made to the Jamaica Teachers’ Association (JTA), which may have been less than they demanded, but seemingly better than what was on the table.

The Government has just completed a major reclassification of public sector jobs and salaries, reforming a byzantine arrangement of 325 salary scales and 185 allowances. There are now only 16 salary bands and most allowances have been rolled into taxable salaries.

The reclassification which, in general, brought pay parity to jobs of the same or similar value or skills, means that some workers will receive substantial pay increases, on top of which, as Dr Clarke reminded Parliament in the budget debate, there was an offer of a 20 per cent hike on the adjusted salaries, over three years.

BARGAINING UNITS

Most bargaining units settled relatively early. However, a few, including the police and teachers, rejected Dr Clarke’s offer, despite his insistence that failure to be on board before the end of the current fiscal year – which concludes in 12 days – would deprive them of the retroactive monies in the near term. Indeed, the minister wrote in this newspaper on Thursday that the outstanding J$30 billion earmarked for teachers as back-pay “would most probably need to be paid over a number of years beginning in 2024/25”.

The 2023/24 budget, he said, had no provision for retroactive wages, although the one for 2024/25 was crafted with the new pay scales in mind. Further, he suggested, any acquiescence by the Government risked collapsing Jamaica’s hard-won fiscal/macroeconomic stability, which, of course, The Gleaner wouldn’t wish to happen.

The terms to which the JTA agreed last (causing a rift among its leaders, between those who sanctioned the deal and those who wanted to hold out for better terms) haven’t been announced. But according to some reports, it includes up to an additional J$50,000 a year to trained teachers. With the initial offer, they, depending on where they fell on the new pay scale, would have received between J$2.95 million and J$3 million a year.

Assuming the additional half a million dollar figure is true, it is not clear to what proportion of the 25,000 state-paid teachers it would apply. We presume it to be the majority. But if it were only 10,000, the implication would be the minister’s need to find at least an additional J$5 billion in 2024/25 fiscal year to cover the obligation. The bill would rise by half a billion for every additional 1,000 teachers.

We, however, prefer not to speculate. Dr Clarke will no doubt provide the details of the deals, covering whether it will require additional, unplanned expenditure, and if so, how that will be financed and the implications for the fiscal accounts.

ISN’T DISCONNECTED

This matter isn’t disconnected from the second issue of concern – Jamaica’s medium-term growth prospects, as laid out by the Government in its fiscal policy paper for 2023/24.

Jamaica recovered robustly from the COVID-19 recession. The economy is back to pre-pandemic levels.

The problem is the next four fiscal years, for which growth is projected, respectively, at 1.6 per cent; 1.1 per cent; one per cent; and one per cent.

Since 2012 Jamaica has undertaken perhaps the toughest, and most sustained, fiscal reform in the world. The upshot: but for a short hiccup during the pandemic, its budget is almost balanced. It has consistently run primary surpluses of close to six per cent of GDP, and as high as 7.5 per cent early in the reform process. The national debt has declined from near to 150 of GDP, to just under 80 per cent and is projected to fall to 58.8 per cent by 2026/27.

However, despite vibrancy in construction, resilience in tourism and low unemployment (6.6 per cent), robust growth continues to elude the economy. The projected growth rates are at the same anaemic levels that constrained Jamaica for decades. That was a driver for reform.

The issue faced by Andrew Holness’ administration is how it intends to transform macroeconomic stability into sustained growth, and head off any inclination to adjustment fatigue.

Indeed, it is a question that Dr Clarke should begin to answer on Tuesday, taking into consideration the potential effect of a raft of measures announced by Prime Minister Holness on Thursday – ranging from 44 per cent increase in the minimum wage, to free vocational skills training by the Government’s training agency, HEART/ NSTA Trust, and a slew of infrastructure to be implemented over the next few years.

Whether or not these are sufficient to move the needle, Dr Clarke has an opportunity to open a serious conversation on growth. As he is at it, the minister might provide an update of the Economic Growth Council that was launched eight years ago.

CORRIGENDUM

In this editorial reference was made to a police rejection of the Government’s restructured compensation offer. While the Police Officers’ Association (POA) had rejected the offer, the Jamaica Police Federation (JPF), which represents rank and file members of the force, had not formally communicated a decision to the ministry at that time.

Reference was also made to an opinion piece written by Minister of Finance and the Public Service Dr Nigel Clarke in The Gleaner last week. The editorial suggested that Dr Clarke said $30 billion was set aside for retroactive payments to the teachers. Dr Clarke had, in fact, said that the amount was for doctors, teachers and the police.

The editorial further quoted earlier reportage which indicated that graduate teachers were being offered $500,000 more per annum. The correct figure should have been $50,000.

A statement was made that a 20 per cent increase was being offered on reclassified public sector salaries. However, it is the actual reclassified salaries which would offer a minimum 20 per cent increase in net pay.

We acknowledge the errors and apologise for any inconvenience caused.

Updated March 20, 2023