CDB tells Government to cap its wage bill

With the Freundel Stuart administration currently under pressure from trade unions to grant a double-digit pay hike to public sector workers, one of the island’s key regional development partners is suggesting that Government acts otherwise.

In fact, if the Stuart administration heeds the advice of the Caribbean Development Bank (CDB) it could be a while before any significant wage increases are granted.

Speaking to Barbados TODAY on the sidelines of Wednesday’s regional press conference at the Bank’s headquarters here, Director of Economics Justin Ram strongly urged Government to consider putting a cap on its wage
bill relative to its gross domestic product (GDP), while pointing to the urgent need for the country to reverse its high debt-to-GDP ratio and to reduce its massive transfers and subsidies bill.

The economist explained that by capping the wage bill at a certain percentage of GDP, public sector workers would be afforded an increase once the economy grows.

However, he said the catch was that state departments and agencies would have to be reformed and public sector workers would have to become more productive in order to help drive that growth, which he said should be led primarily by the private sector.

“As it relates to wages, we have been advocating for most of our borrowing member countries to have fiscal rules, and one of those fiscal rules says that perhaps wages of central government should be no more than a certain percentage of GDP,” Ram told Barbados TODAY.

Using Grenada as an example, he said public sector wages were capped at about nine per cent of GDP, while suggesting that Barbados should consider putting a similar cap in place.

“We think that nine per cent level is quite good. Here is where the crux of the matter is, We say to workers in the public sector, ‘if you want to have an increase in your wages that should be matched by an increase in productivity’. So public sector workers have to have an interest in ensuring that the economy grows as well, because once the economy grows and if you have that cap on wages, let’s say nine per cent of GDP, then you could imagine your wages will rise if the overall pie is increasing.

“ . . . So when unions ask for increases in salaries you should ensure that those increases are also matched by improvements in productivity as well,” he stressed.

The National Union of Public Workers has been pressuring Government for a 23 per cent wage hike for its members, while its sister union, the Barbados Workers’ Union, has been demanding a 15 per cent pay rise.

However, Ram cautioned against a double-digit increase at this time, pointing out that Government was still saddled with a high debt despite a slight improvement last year.

Just last week, the Central Bank reported that gross Government debt dropped slightly to 145.9 per cent of GDP between April to December last year, from 147.5 per cent of GDP the previous year.

“Why did we have those improvements? Primarily because the Government did not spend enough on capital expenditure and we are seeing that with respect to infrastructure,” Ram said.

“What has to happen is that the Government needs to put in place a plan to coherently deal with bringing the debt to GDP ratio down to a sustainable level within a certain period of time,” he added.

The CDB economist said it was about time Government reforms state enterprises in an effort to reduce transfers and subsidies, which he said was “just too high in Barbados”.

While there was a marginal decrease in the wages and salaries bill for the April to December period last year, there was a $49.9 million increase in transfers and subsidies, which reached $803.4 million at the end of December.

“It means that state-owned enterprises need to be reformed. So the Government needs to look at that in its entirety and decide which state-owned enterprises are providing useful benefits to society and which of those state own enterprises may not be providing such a useful benefit, and then Government can decide if it wants to improve productivity or perhaps use a type of public private partnership to improve productivity of those state-owned enterprises thereby reducing the transfers on Government expenditure,” Ram recommended.

5 Responses to CDB tells Government to cap its wage bill

  1. Tee White February 9, 2018 at 7:37 am

    Why only have a cap on the wages of public sector workers? Why not also have a cap on the profits that private firms, both local and international, take out of the economy? Why not also have a cap on the money government pays to private firms through the various contracts? What about a cap on the amount of the budget that is used to service debt? If we’re talking about capping expenditure, why is it only the workers who have to have their income capped. Let those who can afford it contribute the most to getting the country out of the current economic situation. If a billionaire loses 90% of their wealth, they will still be a multi-millionaire. When an ordinary worker loses their income or has it cut, it has a much bigger impact on the lives of those depending on that income. Mr Ram should answer Freundel’s question…”If the workers have done nothing wrong, why should they be victims to all of this?”

    Reply
    • Jason Arthur February 9, 2018 at 1:56 pm

      There will be no free rides out of this mess, Tee. If they don’t cut or cap expenditure, they will still have to do something else to help close the deficit. This government doesn’t seem to have any ideas about how to spur growth in the economy, so the only other option is to raise taxes year after year. That’s why they increased the NSRL last year. Rich and poor have to pay that, right? No free rides for anyone.

      Reply
      • Tee White February 9, 2018 at 4:29 pm

        @Jason Archer
        The problem is that those who can most afford to pay are being given a free ride and thos who can least afford to pay are having the burden put on them. The IMF, CDB and the other neo-liberal economists are trying to push Bajans into a corner to accept attacks on their living standards without full and open discussion about our economy and our options. First of all, these ‘learned economists’ always present the Barbados economy as if it is the government receipts and expenditure. But this is plain false. The government gets its revenue from the economy through various types of taxes, just like workers get theirs through wages and salaries and capitalists get theirs through profit and interest on debt. Everybody relies on the Bajan economy for their income. Therefore if we have economic problems we have to look at the whole economy not just the government’s share of it.

        According to the World Bank, in 2016 the Gross Domestic Product of Barbados, meaning the total value of goods and services produced by the working people of Barbados, was just over BD$9 billion. According to the Barbados Government Estimates of Revenue and Expenditure for 2017-18 tabled in the House of Parliamnet on 7 March 2017, the government claimed just under BD$3 billion (33%) of this in taxes, leaving the other 67% to be divided between the workers as wages and salaries and the capitalists as profits and interest. What proportion of this 67% is disappearing into the pockets of the capitalists? Why isn’t this figure widely known and why isn’t it part of the discussion on our economic difficulties?

        Even if we look at the government expenditure, this is not only spent on workers’ salaries. There are many elements of this which are handed over to the capitalists. Debt servicing alone is currently costing the government BD$1.7 billion each year. There are also the outsourcing contracts such as the one between the government and
        Mr. Bizzy Williams’ Sustainable (Barbados) Recycling Centre Inc. (SBRC), under which the government is obliged to underwrite a guaranteed minimum payment of $22.6 Million per year to SBRC over a 20 year period for the processing of solid waste at its landfill site. Why is there no discussion about capping these government outflows and all the fosuc is on capping what goes to the workers? We need to get all of this out into the open before we can decide who is getting a free ride.

        Reply
        • Jason Arthur February 11, 2018 at 9:35 pm

          Thanks for your response, Tee. I can’t say that I agree with your point of view, but hey, that’s okay because the most important thing here is to have a healthy exchange of ideas. 🙂

          Personally, I’m not somebody who is in favour of targeting the rich simply because they can afford to pay more. Let me start out by saying that I’m not rich, so I don’t see my sentiments on the matter as self-serving either. For starters, I am someone who is wary of political solutions that are possibly divisive. This is a world that is already too fractured and full of turmoil, in my opinion. So, I’m more than a little uneasy when you say to me, “We need to go after the rich people! They are the problem!” That sounds like the beginning of something that would amount to class warfare, and that’s a dangerous road to go down. Believe me when I say that neither side will come out unscathed. We all know that there are a significant number of self-employed people on this rock who fly under the tax man’s radar and don’t pay their fair share. Now, how can it be right to target the wealthy for an even higher tax burden while ignoring people who aren’t contributing what they should?

          Now, it’s certainly a good idea for a government to take a look at its tax collection system every once in a while in order to determine if there is a genuine need to place a higher or lower burden on a certain segment of taxpayers. As times change, circumstances change and you might see good reason to adjust your tax policy to achieve any number of things: to incentivize the business community, to ease the burden on the poor, to raise more revenue, etc. Having said that, I’m someone who thinks that slapping rich folks with higher taxation can sometimes end up doing more harm than good. Take for instance, if you tax business people to the point that it hurts their bottom line, what might they do in response to that? Could they possibly resort to layoffs in order to erase the effects of the new taxes? Could they possibly delay expanding their businesses, and by extension, hold off on hiring new staff? My point here is that we need to be very careful about what we do next as a country because making any rash moves might just end up making a desperate situation into an absolute catastrophe.

          Reply
  2. Adrian Hinds February 9, 2018 at 2:38 pm

    The BLP, CDB, IMF,Rating agencies, Barbados private sector are all calling for the same thing which spells trouble for public workers. Yet their Union leaders are hell bent on a wage increase fight with Government, even as the DLP is about to be kicked out of office for their position of not correcting government finances on the backs of public workers. Were I a public worker I would selfishly back who got my back for real not who promise to do so.

    Reply

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