Public sector wages the main budget issue

OPPOSITION spokesman on finance and planning, Audley Shaw, believes that the failure of the Government to make any progress in wage-related discussions with its employees could make it the major challenge for 2015/16, as the budget debate commences this afternoon at Gordon House.

“There is nothing in the budget which is anywhere near meeting the demands of the trade unions,” Shaw told the Jamaica Observer, yesterday.

Fiscal experts have pointed to a $10.3-billion gap in the financing of the estimates for 2015/16, for which Minister of Finance and Planning Dr Peter Phillips will have to rely on the implementation of new revenue measures as a major risk.

The minister says this is necessary to maintain his fiscal policy stance of a primary surplus of 7.5 per cent of GDP, and as a means of reducing the debt to more sustainable levels.

However, Dr Phillips has assured the country that new transfer pricing rules, which will govern transactions within companies that have local and overseas representation, should take care of about $8 billion of that deficit. This means that he would only need some $2.5 billion more — which could be achieved through increased compliance — to fill the hole.

He says that this measure will ensure that the actual prices charged for these intra-company transfers reflect “realistic pricing comparable to what would have taken place was the transaction done between unconnected parties”.

But, with his March 31 deadline for completion of wage talks with over 70,000 public workers impaired by a late start, a huge challenge is looming in achieving the nine per cent of GDP for public sector salaries, despite the International Monetary Fund (IMF) agreeing to an extension of the target date to 2016/17.

Wages and salaries currently constitute an average of 52 per cent of central government’s primary expenditure, and even a one per cent increase in the wage bill would represent an added expenditure of 0.1 per cent of GDP.

The salary/GDP ratio is currently estimated at 9.8 per cent, according to Observer sources. The Fiscal Policy Paper (FFP), also tabled on February 19, said that it is 10.1 per cent in 2014/15 and should fall to nine per cent in 2017.

According to the FPP, there is “a major element of risk” in the budget with respect to wages relates to the negotiations and disputes where the outcome is uncertain.

“The outcome of these negotiations are uncertain at this time, thereby introducing an element of risk to the wage bill and the wider fiscal programme,” the FPP stated.

The Ministry of Finance and Planning says that, to help mitigate this risk, the Government has budgeted a paybill of $165 billion, as well as a contingency of $11 billion for wage adjustment and other priorities. But, Shaw and the trade unions believe that the estimates are well below what would be needed to meet the demands of the unions which are seeking, basically 15 per cent in 2015/16 and a further 15 per cent in 2016/17.

The contingencies include a total of $21.3 billion, most of which will meet arrears including statutory deductions from employees wages which have not been paid over by the Jamaica Urban Transit Company and other ministries, departments and agencies; central government expenditure arrears; GCT provisions for government purchases; back pay; and the final tranche of the $25,000 per year one-off payments which induced an agreement on the current agreement which expires on March 31.

Phillips will also open the debate with the knowledge that the public debt, expected to rise to $2.072 trillion by March 31, is a major challenge to much-anticipated growth in the economy.

According to the FPP, the Government’s borrowing requirement for 2015/16 amounts to $129 billion, which is needed to finance a deficit of $4.8 billion, as well as cover amortisation payments of $178.5 billion. Just over $56.3 billion of the budgeted loan receipts is programmed to come from domestic or local sources, while $72.5 billion is to be sought from international financial institutions, including the IMF, $12 billion from project loans and the rest from the international capital market.

However, the Government says that its borrowing needs for 2015/16 are a 21 per cent decline in gross loan receipts, compared to 2014/15. This is due largely o the lower fiscal deficit, as well as the fact that it has pre-financed a significant portion of its obligation in 2015/16 from resources raised in 2014/15.

This is expected to support a continued decline in the stock of public debt from an estimated 131 per cent of GDP (Gross Domestic Product) projected for the end of 2014/15 (March 31), to 120.4 per cent of GDP by the end of 2015/16.