AS the Government prepares to enter high-stakes wage negotiations with public sector unions to hammer out a compensation package for the three years from 2025 to 2028, Keith Duncan, chairman of the Economic Programme Oversight Committee (EPOC), is sounding a warning that the country’s ballooning public sector wage bill must be reined in to prevent a devastating blow to the nation’s decade-long, hard-won economic gains.

Duncan, hosting his final meeting as head of EPOC on Friday, sounded the alarm on the spiralling public sector wage bill, noting that it has grown from consuming about 36 per cent of tax revenues in the 2021/22 fiscal year and is now devouring 45 per cent of tax revenues. Left unchecked, Duncan warned, this trend will persist, crowding out other critical expenditures.

“There are a lot of uncertainties around the growth trajectory for Jamaica in the near to medium term and therefore one has to take account for that because it reduces the fiscal flexibility the Government of Jamaica has to deal with the other programmes’ spending. It has to deal with the safety net to protect the vulnerable, so if you have such a large chunk of your tax revenues being allocated to public sector compensation it reduces your flexibility significantly. It reduces the amount you can spend on capital expenditure — which is how you increase productivity and improve the infrastructure that we see needs so much improvement in Jamaica — and therefore the public sector needs to be aware of where we are. And this is where Jamaica needs to come together with a full understanding, being able to communicate, and everybody can manage their expectations and manage their ask in a responsible way,” Duncan urged unions and public sector workers.

He said while the public sector has had to endure wage freezes over many years, the wages and salaries tab that is projected to reach $414 billion this fiscal year, which ends March 31, 2025, has already doubled the $208 billion it was four years ago in the 2020/21 fiscal year, and could reach over $508 billion by 2028. It’s a kind of growth he believes is unsustainable, especially in the face of all other spending the Government has to do. Given that, he wants the Government to adopt the same disciplined approach to managing the wage bill that it applied successfully in reducing the debt when measured as a percentage of value of the country’s total output each year.

“We really do believe that Jamaica should consider the reintroduction of the wages and salaries fiscal rule to cap wages and salaries as a percentage of GDP,” Duncan said.

Up to April 2023 Jamaica had a rule to cap public sector wages and salaries at no more than nine per cent of gross domestic product (GDP) each year but has met that target only once. In other years the target was exceeded, and in this current fiscal year it is expected that public sector wages and salaries will be equivalent to about 12.83 per cent of GDP. Duncan, acknowledging that it might be difficult to implement a wage to GDP ratio of nine per cent, called for the Government to analyse the current situation and make a determination of what level the cap should be.

“We need to be able to set a target and just cap it — [even] if that target is 12 per cent or 13 per cent. I’m not saying we [should] get back to nine per cent. I am [asking], ‘Where do we want wages to GDP to be capped at?’ “

Returning to the portion of the budget taken up by wages and salaries, Duncan said it is now time for the country to move to the next phase of the 2022 public sector compensation reform, which is to link that wage increase to performance.

“We were told by the previous minister of finance that it would get underway. That is going to be a knotty exercise because some believe that that should have had happened in parallel with the very complicated public sector review.”

He noted that while the call is being made for a cap to be reintroduced on the wage bill in relation to GDP in the next round of negotiations between the Government and unions, there are outstanding wage negotiations from the last agreement still to be sorted out, including that for junior doctors, which will present a challenge for the incumbent minister of finance to sort out.

Yet, he was adamant: “It is important therefore that growth in wages and salaries be kept lower or in line with GDP growth to ensure that the wages to GDP ratio is stabilised and reduced over the medium term.

“We are therefore reiterating our call to cap the wage to GDP ratio once again — and this is a strong recommendation.”

But public sector wages and salaries were not the only issue bothering the EPOC chairman. The election cycle now underway, with campaigning in full swing, came in for attention, with a warning that the Government should not abandon fiscal prudence to dole out “the goody bag” in a time when the economy is facing uncertainties with projections of contraction that could throw tax revenue projections off target.

“Achieving the growth projections, fiscal balance targets, and the debt reduction strategies will become challenging and will require significant political will, particularly as the country is in the midst of an election campaign leading up to the general election scheduled for next year.

“You know the goody bag always rolls out in the election season. We are going to have to be very careful how we manage that goody bag going forward.”