In his much-anticipated national address on public service wage negotiations and the state of the economy Sunday night, Prime Minister Dr. Kenny Anthony called on St. Lucians to “sacrifice collectively” and for trade unions to fore-go any significant salary increase for 2010-2012, saying any major wage increase will balloon the budget deficit, resulting in cuts in government subsidies and the size of the public service.
Instead of a wage increase, Dr. Anthony said government is offering every public officer a $1,000 bonus “until such time we can be in a better financial situation”.
“We believe there is greater equity in this as persons who are at the lower grades will be the greatest beneficiaries. For instance, a Grade 3 officer would receive a bonus equivalent to five percent of his or her annual salary. This proposal would equate to about $10 million which the government would have to source from bonds: which is, as I have explained, borrowed money,” he explained.
The prime minister explained that the current proposal by the Trade Union Federation for a wage settlement will increase the government wage bill by about $55 million annually for every year in the future. He said the back pay associated with this proposal would cost about $40 million, leading to a worsening of the current deficit of close to $100 million for this financial year.
“It also means that for every ensuing year, government would have to borrow an extra $55 million just to meet the increase. This is clearly a path that a responsible government should not take,” he said, adding that “even with the offers on the table from the Government Negotiating Team of a lump sum payment, which is equivalent to a one-off three percent increase, government would still have to borrow an extra $10 million just to pay wages”.
He said “if we agree on a wage settlement higher than what our country can afford then we would have to immediately reduce or eliminate a number of programmes to fund this new expenditure”.
“We still have the chance to avoid going to the IMF but this will involve some very tough decisions. It will involve rebalancing our expenditure and taking steps to ensure that we borrow only for high-return capital projects. These are the realities that face us. That is why I urge that we need – all of us – to sacrifice collectively.”
He further explained: “The subsidy on petroleum would have to be reviewed and we may have to move to a full pass-through mechanism where fuel prices increase every time the price of oil goes up on the world market. The government subsidies on rice, sugar and flour would have to be reviewed. VAT would have to be imposed on water and electricity and a range of other items that are now VAT-exempt or zero-rated.
“We would also have to revisit the size and configuration of the public service to see where we can obtain the savings required to finance the salary increases that are being requested. These are the steps that government would have to consider in attempting to guide the country away from the looming fiscal crisis. In fact, even without the impact of the union-proposed wage increases, there is still a need to cut back on a number of activities because we simply cannot continue to borrow at the rate of the past three years.
“I wish to state categorically that our Government does not want to reduce spending on education, health services, national security or social safety nets to assist the poor and vulnerable in order to pay higher wages to public officers. Neither do we wish to reduce the size of the public service and increase the pool of unemployed people in our country at this time.”