THE PUBLIC SECTOR WAGE BILL PALAVER

Across the world, the public sector is considered a major employer, major provider of services in the economy and consumes a chunk of the consumer tax resources. In Ghana, according to the 2010 Population and Housing Census, 740,000 workers are found in the public sector. In fact the wage bill has escalated from 2 billion to a whopping 7 billion after the transfer of 90 percent public sector workers to the Single Spine Salary Structure. President Mahama on 4th January 2013 made a stunning revelation that an enormous 60 percent plus of national revenue goes into payment of public servants in his presentation of the state of the nation’s address. This means less than 40 percent of the total national revenue goes into direct and actual production and provision of goods and services as well as dealing with the numerous problems of education, health, water and sanitation, energy etc.

In the last decade, both the Government labor force and wage bill grew rapidly, to meet growing demand for public health and education services in particular. While the number of public sector employees broadly grew at population’s pace, individual remunerations, salaries plus allowances, increased much more rapidly, at about 17 percent per year in real terms. Growth in allowances was much more rapid than growth in salaries, and growth in remunerations higher in sub vented agencies than in ministries & departments. Still, by 2008, Ghana’s average public sector remunerations were lagging behind most regional comparators.

In proportion of GDP, the wage bill (salaries and allowances, item 1 and item 2) went from 3.9 percent in 2000 to 4.7 percent in 2004 and 7.6 percent in 2008. In proportion of Government revenue (excluding grants), the wage bill went from 32 to 57 percent between 2000 and 2008.

Over the same period, the number of public sector employees increased from 371 thousands to 478 thousands, that is, broadly at the same pace than Ghana‘s population. In 2008, 2.1 percent of the population was employed by the public sector, against, 2.0 percent in 2000 and 2004. Thus, average individual remuneration in the public sector (the wage bill divided by the number of employees) was multiplied by 12 between 2000 and 2008. Accounting for consumer price inflation, individual remunerations were multiplied by 3.6 over the same period, corresponding to an average 17 percent annual growth rate in real terms.

With respect to Sub-Saharan comparators, Ghana stands as an outlier on several grounds. While Ghana‘s wage bill over GDP is higher than the average of sampled countries, 7.6 against 6.3 percent in 2008, it is not the highest. But what really distinguishes Ghana from comparators is the size of its public sector labor force in proportion of its total population, twice as high as the average (2.1 against 1.0 percent). In turn, individual remunerations in the public sector with respect to GDP per capita were much lower in Ghana (3.6) than in the rest of Sub-Saharan Africa (7.1) in 2008.

These facts notwithstanding however, it appears the commitment and capacity of the public sector to help in the management and development of the country is in doubt. In the late 1970s and early 1980s, the Structural Adjustment Programme recommended for the country by the Britton Woods Institutions was mainly informed by a non-performing and lousy public sector. Hence the suggestions such as privatization, deregulation and fiscal discipline. 

The sector is currently bedeviled with issues pertaining to corruption, absenteeism, incessant bureaucratic processes, poor customer care, low morale and motivation, lack of strategic planning, lack of entrepreneurial skills and negative work ethics leading to low performance and woeful output. No wonder we keep dwindling with our score of the Corruption perception index and now at a record high of 4.5/10 score level according to the Transparency International’s 2012 ranking.

The overall implication is that a huge percentage of government revenue goes into wage payment while other sectors of the economy which need major development may not receive the necessary capital for development. For instance, government has plans to build 200 new senior high schools using moneys generated internally but this could be in jeopardy if there is consistence increase in the wage bill as from 60 percent to 70 percent by next year. Government will be force to either abandon its sets project or make adjustment to the projects.

On major implication of this situation is that government will have to turn to foreign partners and donors for loans and grants which in itself have consequences on national development and fiscal policy of the government. It is estimated that a large number of funds from our budgets come from the European Union and other partners. These loans will eventually be paid at a cost to other sectors and bad agreements. Example in 2007 government entered into an agreement with the World Bank with the latter urging government to cut employment for the public sector. 

The implication to the overwhelming wage bill of government is clearly seen in the seasonal industrial and union strike that government faces at the beginning of each year. To be precise, this year has already seen doctors, teacher, lectures of public universities; pharmacists have all embark on industrial strikes. This is because, Public sector salaries are negotiated each year and this process commences in the first quarter with minimum wage negotiations between Government (through the Ministry of Employment and Social Welfare), unions and private sector within the National Tripartite committee. This opens a season of negotiations between Government and unions on public salaries for the current year, including retroactive payments from January. This calendar makes it challenging for the Government meet union expectation as the government revenue is insufficient while public servant agitate for their seasonal increment of wages.

What government can do in a short and long term is to put in place mechanisms that will ensure increment in government revenue to check the high wage bills. One such measure will be the widening of public revenue collections through duties, fees, charges, and fines because while some revenue items are duly recorded in the budget document, it is possible that many others are escaping it altogether. Again government can widen it tax net by tapping into the informal sector in the collection of fees and tax. It is estimated that large chunk of revenue from the informal sector is exempted from taxes.

Government can increase it revenue by linking public sector remuneration with productivity index level. It is well documented that public sector productivity in the country is poor as a result of poor management, corruption among others. For example, Public servants still spend a good deal of time watching movies, movie seasons and series for hours in offices, working lotto or reading dailies at the expense of work and service. To further amplify the issue, Section 4.6 of the Government White Paper on the Single Spine Pay Policy makes the following observations;

Government did not find any linkage in performance management and productivity in the Single Spine Salary Structure. Government recognizes that improved compensation must be driven by improved performance or productivity’. In effect, there would be the need to establish a link between the new salary policy and performance management.

Government can increase its revenue by borrowing from their economic partners and other foreign donors or domestic borrowing. Domestic borrowing refers to government collecting loans from commercial banks while foreign borrowing is the receiving of loans governments abroad, the U.S.A, Germany, IMF etc. Loans received are payable with interest attached. If the rate of interest is high, it creates extra burden on the country.

Another way of increasing government revenue is putting in place mechanism to check corruption in the public sector and informer sector. Checks need to be made on people and companies who do not meet their tax obligations.