COMMENT: Pay cuts and the public service
We have recently seen comments published elsewhere in the media that suggest it would be unfair for the civil service to take pay cuts alone, and that the whole of Barbados’ work force should also be asked to take a similar hit. We appreciate that some of this rhetoric is union engendered and perhaps much comes from workers in the public sector, and/or their families.
The fact is many companies have already asked their staff to take cuts for a period of time, or to defer payment of a portion of income. That said, there still seems to be a fundamental lack of understanding of how and why the public sector came into being, and what the cost means to taxpayers.
The public sector exists to carry out the work of an elected Government, which includes providing common services needed to keep society running – water, sewage management etc. The cost of the public sector, a significant portion of which is employment, is paid for out of tax revenue extracted from those who earn a salary or wage or generate profitable revenues that can be taxed – and in Barbados’ case, even from retirees and pensioners. If there is a dramatic and prolonged fall in Government revenue, especially one accompanied by a dramatic rise in social care costs (like unemployment and severance payments, Covid-19 response costs), any responsible Government must look at what costs can be cut, even at the expense of reduced services. With the wages bill being a significant portion of the overall public service cost, how can Government not seek to cut this expense, particularly if there is to be no reduction in the numbers of civil servants?
Additional taxation, some may say? At this point imposing more taxation is not sensible – Barbadians are already reeling from high taxation, and with declining income from job losses and business disruption (e.g. tourism), additional taxation would be counter-productive. We question whether cutting costs, including reducing Cabinet and consolidating ministries, is not the obvious and wisest option. The cost of this public service is a core part of the economic problem facing the country. We can’t expect to maintain that level of expenditure, and we can’t easily raise additional tax revenue, and it will be a long while before our key industries return to profitability – so, something has to give.
The Prime Minister’s BOSS initiative
This brings us to the PM’s recent press conference on a pay cut in the public sector. At first blush, we thought we had to hand it to the PM’s advisors for coming up with a scheme that would defer part of the public sector wage bill over the next several years. The reason it appears clever is because it still gives civil servants the chance to get their full pay by allowing them to put their bonds on the market which, her advisors say – at 5% interest and “protected” from any future debt restructuring – is going to be attractive and readily saleable to investors waiting to snap up these new BOSS bonds.
It seems, though, there is something amiss with that logic. The BERT debt restructuring exercise decimated the savings of thousands, including the retirement income of many pensioners, and hit banks and financial institutions hard enough to cause reported financial losses.
All of that pain is still fresh, and among those hard hit were public servants, both retired and planning for retirement. We cannot help but wonder if these affected investors will not be asking that dreaded question – can I really trust the word of this or any Government anymore? Will we be truly protected, or will they simply go to Parliament and pass legislation to get out of their obligations, as was done before?
More to the point, we don’t believe deflecting the problem to a future date, or trying to solve a core cost problem with a cash flow solution, are what Barbados needs. It’s time to deal directly with the public sector issue, both in terms of size, cost and efficiency – the true elephant in the room.