“A STITCH IN TIME SAVES NINE”
ADDRESS TO THE NATION
ON THE
CURRENT FINANCIAL SITUATION
AND
WAGE NEGOTIATIONS FOR THE PUBLIC SECTOR
BY
HON. DR. KENNY D. ANTHONY, PRIME MINISTER AND MINISTER FOR FINANCE, ECONOMIC AFFAIRS, SOCIAL SECURITY, PLANNING & NATIONAL DEVELOPMENT
SUNDAY, JANUARY 06, 2013
INTRODUCTION
Fellow citizens, ladies and gentlemen, good evening!
I regret that I have had to intrude into your space and time so soon after the New Year has commenced. I would have preferred to do so much later in the month, but the issue before us can wait no longer.
I speak of the matter of the settlement of the ongoing negotiations on salaries and working conditions for public officers.
A JUST WAGE FOR PRODUCTIVE LABOUR
I accept that our trade unions and the public officers and daily paid workers whom they represent are anxious to resolve this issue, particularly as the triennium for wage negotiations is coming to a close. Equally, the Government is anxious to bring closure to the negotiations so that industrial peace can prevail and we can then proceed, together, to correct the structural imbalances and weaknesses in our economy.
We do not need indecision; we need certainty in these difficult times.
I believe, like every citizen, in a just wage for fair and productive labour. What is fair or just is always debatable because so many factors come into play in arriving at a conclusion. One thing is clear though: in the final analysis, the payment of a wage that is deemed to be fair and just depends on the employer’s ability to pay.
This, ladies and gentlemen is the crux of the issue that faces us: the ability of the Government of Saint Lucia to meet the demands of its nine thousand five hundred workers for increases in their wages by 15 percent, spread over three years.
LIVING WITHIN OUR MEANS
As we ponder this issue, whether in the public sector or the private sector, we cannot be oblivious to the fate that has befallen once mighty democracies in Europe, North America and most importantly, to our neighbors, right here in our own backyard, in our own region.
Save for our pleas to our Maker and Creator, we have nowhere to turn for help to deal with our problems especially when they are of our own making. We cannot turn to the rest of the world for help. They have all abandoned us, consumed with their own challenges and what they believe to be their strategic interests.
We are now seen by the rest of the world as a “middle income” state. This means that they want to disqualify us for grants and concessionary financing. The message is that we must stand on our own, despite our vulnerability to natural disasters and climate change, despite our smallness of means or might. They will invest in us only if they have an interest to protect.
This reiterates the message that we must live within our means or face the consequences on our own.
CURRENT ECONOMIC CHALLENGES
It is clear that we are at a critical crossroad and face serious financial challenges. The mounting fiscal pressures are a consequence of low growth and attempts by successive governments to actively spur employment and protect the vulnerable. These actions are costly, as Government has had to borrow heavily to support these activities. Fortunately, the financial markets continue to view the debt issued by our Government to be relatively sound. However, we must be extremely careful moving forward. Given our previous and current borrowing needs, we have arrived at the point where caution must be exercised in choosing the programmes and projects to be financed with debt. Our rate of debt accumulation must be reduced and this must be done without delay.
There has been much talk about the Value Added Tax (VAT) and its impact on revenue. Some even say that the Government has had a VAT windfall and so can pay.
Based on the early trends, VAT collections appear to be in line with what was expected. It does not appear that it will be much higher than the $120 million that was budgeted for this fiscal year, adjusted for the one month delay. Because this amount had already been budgeted for in the 2012 Estimates, VAT will not provide us with any additional or new resources this year and therefore cannot be factored as money which is available to pay public officers this year. In other words, our projected revenue shortfall this year takes into account our VAT collections. This confirms what we have always stated; VAT’s main effect is to simplify the collection of taxes by replacing a range of taxes like Consumption Tax, Environmental Levy, Cell Phone Tax and Hotel Accommodation Tax, among others.
On the other side of the equation, however, expenditure has grown, driven mainly by a 17.2 percent increase in interest payments for loans, a 17.1 percent rise in payments for goods and services, and an 18.5 percent increase in transfers to government corporations, statutory boards and companies to enable them to meet their costs. The effect of this increase in expenditure is that the overall gap between expenditure and revenue will be roughly $398 million and rises to $492 million when principal repayment on debt is included, or more disturbingly, over 10 percent of Gross Domestic Product.
But what really is driving our current borrowing needs? Well, most of the borrowing is used to fund capital expenditure. However, this year, as indeed had been the case for the recent past, a significant share of $45 million is being used to cover current spending, meaning salaries, wages, and the procurement of goods and services. An $18 million increase in interest payments on previous debt, payments for goods and services like rentals, telecommunications and utilities of $25 million, transfers of $19 million, and an increase in wages and salaries of about $9 million are being paid in large amount by borrowed money.
We should also take some time to look more closely at what is behind this $9 million increase in wages and salaries. It comprises new wages and salaries of about $6.6 million, which was driven by a net increase of about 124 individuals in the Public Service. Of those 124 new employees, 40 were employed in the VAT Office. Additionally, there were 39 new Police officers, 12 new nurses, 5 new fire officers and 4 new appointments in top management, that is, Grades 19-21. There were also 24 new daily-paid workers. The remainder of the increase was made up of retroactive payments to top management of the Civil Service of $2.7 million, based on the recommendation of the Salaries Review Commission, which was implemented by the previous Government in 2010 without parliamentary scrutiny or sanction.
Of the $492 million in borrowed funds for this fiscal year, about $350 million of the borrowed money will be used for capital expenditure. So far, only about $22.4 million out of the amount of $182 million already spent is due to new initiatives implemented in this Financial Year. In other words, only 12 percent of the money we have borrowed this year has been used to finance programmes started by our Government since assuming office in 2011. This clearly indicates that the momentum for our current borrowing was established prior to the 2012/2013 Budget.
The situation has become more precarious by the disastrous investments made by the former government. The list includes some thirty million dollars for the purchase of the Daher Mall, an unavoidable payment of approximately twenty seven million dollars to the Government of Jamaica for the acquisition of the Cannelles Lands and another thirty million dollars for the re-acquisition of the Black Bay Lands for the failed Ritz Carlton Project. Every one of these payments will come from borrowed funds.
This level of borrowing cannot be sustained any longer, nor can our country increase the level of debt financing, particularly to fund activities such as expenditure on goods and services or salaries.
TROUBLING DEVELOPMENTS IN THE REGION
Saint Lucia is not alone regarding the need for serious fiscal caution. Antigua and Barbuda as well as St. Kitts and Nevis are facing the consequences of high debt and are undergoing adjustment programmes implemented by the IMF. In those islands, expenditures have been severely curtailed and tough measures undertaken to reduce their debt burden. Grenada’s Government is having problems paying for the services that it provides, including the salaries of public officers. On more than one occasion, Grenada has had to resort to borrowing money from its National Insurance Scheme to pay salaries of public officers.
Barbados, the VAT rate was increased from 15 percent to 17.5 percent in 2010. This was only supposed to be for a short while, but has been retained in an effort to manage the fiscal imbalances of that country. Even with these measures, the international credit agencies indicated a lower level of confidence in Barbados’ debt and Barbados has had to suffer two sovereign rating downgrades in the past year. Our regional bank, The Caribbean Development Bank, has also had to suffer the indignity of two sovereign downgrades this past year.
These are difficult and troubling times for everyone, for people, for Governments and for institutions.
All of us know too well the Kwéyòl saying: “Lè bab kamawad ou pwi difé, wouzé sa’w” or “when your friend’s beard is caught on fire, sprinkle your own.”
A STRUGGLE AGAINST STRONG HEADWINDS
Here in Saint Lucia, we continue to struggle against strong headwinds. The global recession and low investor confidence have left behind very weak economic growth and higher than normal unemployment. Income from tourism continues to be weak, well below expectations. The banana industry has not been able to recover from the devastating double blows of Hurricane Tomas and Black Sigatoka disease. The financial services sector is facing serious challenges due to very high levels of non-performing loans. The fiscal imbalance is widening, while the debt continues to climb. These conditions signal that it cannot be business as usual. We must act responsibly to steer our country away from a looming crisis and a potential IMF structural adjustment programme.
POLICY RESPONSES TO ECONOMIC CRISIS
Reversing the current situation will require that sacrifices be made. Our attempts at helping the average citizen weather the economic crisis are far-reaching. In 2012, over $17 million in revenue was forgone through the lowering of the Excise Tax on gasoline, in an effort to cushion fuel prices at the pump.
Government continues to subsidize 20-pound cooking gas to the tune of $18 per cylinder, which resulted in a total subsidy of $10 million in 2012. Subsidies on basic commodities such as rice, flour and sugar cost Government approximately $16 million annually.
In addition, we introduced the construction stimulus package at a cost of about $6.6 million to date. This included exemptions from VAT and Import Duties on construction materials, along with lower interest rates on mortgages. These initiatives were aimed at providing much needed employment for construction workers and also, to give Saint Lucians the opportunity to renovate their homes and properties that were destroyed or damaged by Hurricane Tomas.
To help the chronically unemployed, we implemented the STEP, NICE and SMILES programs. This has provided some measure of relief and has been a welcome opportunity for many to earn a living and provide for their families. Many young persons were also provided with training and have been able to improve their chances of obtaining some form of employment.
But we have some millstones around our neck. WASCO is one. It is bankrupt, brought to its knees especially following recent events. The company is in a desperate financial position, mainly due to the fact that water rates have not been increased in over ten years. The company cannot meet its operating costs or raise funds for much needed investment or infrastructure improvement to deal with chronic water problems in Dennery, Micoud or Vieux Fort, among others. We had to provide WASCO assistance in the amount of $6 million to address critical issues at the John Compton Dam, which would severely reduce the volume of water that could be supplied to the north of the island during the coming dry season. Additionally, we have had to provide short-term assistance to WASCO to help pay down on large outstanding arrears of $12 million to LUCELEC.
While all these initiatives have been necessary, they have also been very costly. But they highlight the challenges facing our Government in setting its priorities. Clearly, support to the vulnerable and disadvantaged among us must always be a priority, even in these difficult times. We can only reach out and help others if we can contain expenditure in the Public Service. When public officers contain their wage demands we are better able to help the distressed, the poor, the marginalized and the unemployed youth.
However, we cannot be blind to our worsening fiscal position and we must, therefore, take a long hard look at our expenditure.
WAGES AND PRODUCTIVITY
In Saint Lucia, wages have been growing at a rapid pace while productivity has been declining. To put it more plainly, some persons are being paid more for producing less. GDP output has grown by an average of less than one percent over the last three years, and it is projected to remain subdued in the short term. If we base wage increases only on inflation and not productivity or our ability to pay, we are actually making our country poorer and making the goods and services we produce less attractive to the outside world.
I know that this is an “inconvenient truth” but we must summon courage to face our reality.
THE TEMPER OF THE TIMES
I ask our unions to consider the temper of the times. Let us look at developments in our sister islands.
St. Kitts and Nevis implemented VAT in November 2010 at a rate of 17.5 percent, with a VAT on water and electricity. However, St. Kitts also had to freeze Public Sector wages from 2011 as part of its IMF adjustment programme. In Barbados, despite the increase in VAT to 17.5 percent in 2010 and relatively high inflation in the subsequent years, the wage increase has been very modest. Barbados had a cumulative wage increase of 2.1 percent increase for the three year period, 2012-2012. Antigua has had to freeze Public Sector wages as part of its adjustment program. Saint Vincent and the Grenadines settled for a 4.5 percent increase. In the case of Jamaica, for the 2010-2012 contract period, public sector workers, mindful of a looming IMF Programme agreed, in 2012, to 0 percent increase. In Dominica, the Government has offered its public sector workers a 1 percent increase but the union representing the workers say they will only accept 3 percent.
Why then should we be so different?
We also need to recognize that public sector salaries in Saint Lucia are already among the highest in the Eastern Caribbean Currency Union area. Compare for a moment some equivalent salaries in the region:
COMPARATIVE PUBLIC SERVICE SALARIES IN SELECTED OECS COUNTRIES
| SAINT LUCIA | ST. VINCENT | GRENADA | DOMINICA | |
| Accountant II | 59, 533 | 50,136 | 51,060 | 40,611 |
| Customs Officer II | 59, 533 | 32,532 | N/A | 31, 849 |
| Economist I | 52,080 | 48,711 | 44,256 | 40,611 |
| Secondary School Principal | 63, 259 | 57, 948 | 50, 808 | 53,387 |
| Police Constable I | 25,176 | 20, 220 | 15, 484 | N/A |
| Police Corporal | 36, 992 | 27, 228 | 24, 504 | N/A |
I know it will be tempting for some to argue that Saint Lucia is better off than its neighbours and should not be compared with them. However, this is not the case anymore. Saint Lucia’s borrowing requirement as a percentage of GDP is the highest in the Eastern Caribbean Currency Union. This was the case in 2010, 2011 and in 2012. If this trend is not reversed very soon, we will be firmly on the path to an IMF programme.
SYSTEMIC ISSUES IN THE PUBLIC SERVICE
I know that there are systemic issues with the Public Service. I think all sides accept this. Many persons who are skilled and competent cannot be upgraded to higher positions due to an absence of suitable positions. In some instances, there is need for reorganization and reclassification. Equally, there are many areas where ministries require new staff. This will mean additional expenditure.
I know that there are many persons who are working diligently and beyond the call of duty while others are chronically late or spend large chunks of their work day in unproductive activities. Ideally, we would all like a system in which public officers are properly remunerated for top class performance and output. In fact, this is one of the reasons why we urgently need Public Sector Modernisation, to reward those who are truly productive.
However, in the meantime, our current system of negotiations takes on salary increases en masse. So while there is exceptional performance by many public officers, we know this has not resulted in overall improvements of output for our economy.
IMPACT OF PROPOSED SALARY INCREASES
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. 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.
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.
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.
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. 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.
FINDING A REASONABLE SOLUTION
Government has taken the view, based on all that I have explained to you, that the country needs to have fiscal restraint, commensurate with the severity of our fiscal deficit. We cannot fix our addictions by committing ourselves further away from the required medication.
Government is asking the Trade Union Federation to consider the severity of the situation, and in the interest of the country, forego any significant salary increase at this time for the period 2010-2012, so that we can start anew fresh negotiations for the period 2013-2015.
The economy needs to grow; the country needs to be put to work; investments need to be assured. We cannot commit the country to an uncertain fate.
Government has offered every public officer a $1000.00 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 5 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.
Government is not proposing salary cuts, nor it is not proposing retrenchment of the Public Service. This has been the fate that has befallen our sister states and other countries such as Greece, Spain and Ireland, to name a few. We can avoid a similar fate if we sacrifice for our country, our future.
Let us not believe that the fate of our neighbours cannot become our fate. Let us take responsible and prudent action while we have but a little time.
It is for all of these reasons that I pray that we can all come to realize that the Government’s position is by no means unreasonable under the current circumstances.
CONCLUSION: BE THY BROTHER’S KEEPER
My fellow Saint Lucians, we are living in tough times and sacrifices must be made. Many people are without a job and have no means of providing for their families. Governments and people worldwide have recognized the severity of the current situation and adjustments are being made in response. Saint Lucia is no different.
We are at a point in our country’s development that calls for responsible policy decisions. Misguided choices will force us into a situation like Dominica in 2003, when the Public Service had to be cut by 10 percent and public servants had to accept a 5 percent reduction in pay. We do not want to go in that direction, nor do we want to find ourselves plunged into the pain of an IMF Structural Adjustment Programme.
I want to call on all parties involved in the current wage negotiations to think clearly about what is best for our country and to embrace the measures that we must take to put our country on a sustainable and viable development path. It is not just the short-term fortunes of our public sector workers that we must consider, but the livelihoods and future of all of our citizens and the long-term growth prospects of our country.
It is the wish and the ideal of this Government that we can put as many people to work in this economy, and that they be paid a just wage. But this has to happen against the background of what our country can afford at this time. It simply cannot be fair, right or just in these troubling times that some would want all the earnings, while others go without.
I thank you, and may the New Year greet each and everyone of you with good health, success, happiness and many blessings!
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