Last week, we discussed a number of issues relating to the five per cent increase for public servants, arbitrarily agreed upon by the Government after talks broke down with the Guyana Public Service Union. In keeping with normal practice, the next stage should have been to refer the matter for arbitration proceedings. However, this was not done, and since 1995 salary increases were an imposition by the Government, except for the 1999 Armstrong Arbitration Award.
We considered it unfortunate for the Government to continue to time the increase to coincide with the Christmas
holidays rather than in May when the 2013 budget was passed in the National Assembly. We ventured to suggest that this was done deliberately to appease public servants in relation to the quantum of the increase while at the same time serving to undermine the collective bargaining agreement with the Union. This time the Union has not taken kindly to being sidelined and has arranged a series of protest marches, the first of which commenced last Friday.
We drew attention to what the National Assembly approved for the revision of wages and salaries over the last six years against what the Government paid out, and we found that some $11 billion was expended from this allocation to meet expenditure other than for such increases. We carefully reviewed the explanation offered by the Government for this discrepancy, considered that it does not have merit, and explained why.
Today, we continue our discussion of the proposed five per cent increase for public servants.
Financial performance in 2012
Is it a question of affordability that causes the Government to offer only five per cent in salaries increases when inflation is projected at 4.3 per cent? Let us look at the financial performance of central government for the year 2012 which is summarized in the table below with comparative figures for the two previous years as well as the approved budget for 2013:
2010 2011 2012 Budget 2013
$M $M $M $M
Current revenue 119,991 121,223 130,564 162,778
Current expenditure (92,649) (103,961) (118,256) (122,965)
Operating surplus 27,342 17,262 12,308 39,813
As can be noted, the average operating surplus for years 2010 to 2012 was $18.971 billion after taking into account all operating expenditure, including the servicing of the public debt. The budgeted surplus for 2013 is $39.813 billion which is more than double the average of the preceding three years. However, since the Government is operating a cash-based system of accounting, a major item of expenditure, that is, depreciation has not been taken into account. It is not known what that figure would be since the financial statements of the Government do not include fixed assets, such as land, buildings, roads, other infrastructure works, vehicles, office furniture and equipment, and so on. Notwithstanding this, in considering the operating surplus, we should take into account a certain portion of capital expenditure that reflects the replacement of assets that have reached the end of their economic useful lives.
The following table shows actual capital revenue and expenditure for the period 2010 to 2012, along with projections for 2013:
2010 2011 2012 Budget 2013
$M $M $M $M
Capital revenue 22,234 36,756 38,724 45,462
Capital expenditure (46,699) (46,645) (56,442) (54,523)
Financed from
operating surplus 24,465 9,889 17,718 9,061
Amounts expended on capital expenditure over the years have always fallen short of projected levels. In fact, the shortfall for 2012 was 20 per cent. This means that the financing of capital expenditure from operating surplus is likely to be lower than $9.061 billion for 2013. Assuming 50 per cent of capital expenditure represents the replacement of assets, the net operating surplus for 2013 is estimated at $35.282 billion ($39.813 billion minus 50% of $9.061 billion).Therefore, on the basis of actual financial performance in the last three years as well as projections for 2013, it is clearly evident that the Government can afford a higher increase in wages and salaries.
Government’s cash position
According to the Auditor General’s report for 2012, a total of eighteen Government bank accounts were listed as inactive as at 31 December 2012. The net accumulated balance of these accounts and other operational accounts (excluding balances totaling $4.140 billion held in special accounts) was $50.485 billion, compared with $58.776 billion as at the end of 2011. On the assumption that the special account balances are funds that are transferrable to the Consolidated Fund, the total of all Government bank accounts held at the Bank of Guyana would give a positive balance of $54.625 billion as at 31 December 2012. The corresponding figure as at the end of 2011 was $63.082 billion. Is this further evidence of affordability?
One should also not ignore the fact that not all public revenues are to be paid into the Consolidated Fund, as required by Article 216 of the Constitution. We should remind ourselves of the text of this Article:
All revenues or other moneys, raised or received by Guyana (not being revenues or other moneys that are payable, by or under an Act of Parliament, into some other fund established for any specific purpose or that may, by or under such an Act, be retained by the authority that received them for the purpose of defraying the expenses of that authority) shall be paid into and form one Consolidated Fund.
For example, a significant amount of State revenues relating to dividends from public corporations and other State-owned/controlled entities as well as the proceeds from the disposal of State assets, is retained by the National Industrial and Commercial Investments Ltd, and out of which expenditure such as that of the Marriott Hotel is met. Another case in point is the proceeds from the Guyana Lotteries that are kept in a special account under the Office of the President to be used to meet certain expenditure. In both cases, the revenues, expenditure and unspent balances are not reflected in the public accounts of Guyana. This significant omission renders the public accounts incomplete and inaccurate.
The public debt as at 31 December 2012 was $394.429 billion, compared with $378.859 billion at the end of 2011. This comprises mainly overseas debts and the issuing of Treasury Bills. Should these debts also be taken into account to determine affordability? Unlike companies and other businesses, a government does not go into liquidation and wind up operations if it experiences financial difficulties over an extended period of time. Although it appears as if there is a deficiency of assets over liabilities, the picture is an incomplete one since fixed assets have not been taken into account because of the cash-based system of accounting. Given this situation, the overriding consideration is the ability of the Government to service its debts as and when they are due. Was there any difficulty in doing so?
In 1992, the repayment and servicing the public debt was 70 per cent of current revenue, and not 94 per cent that the Government has always claimed that it had inherited from the previous Administration. Yet, as a nation, we weathered the storm, due mainly to a change in political direction initiated by the Hoyte Administration and the structural adjustment programme entered into in 1989 with the International Monetary Fund.
By 1997, the repayment and servicing of the public debt represented 53 per cent of current revenues, with a further reduction to 31 per cent by 1999. The introduction of Value Added Tax (VAT) in 2005 saw a significant increase in current revenue. For example, of the $130.563 billion collected in 2012, $34.077 billion or 26.1 per cent was in respect of VAT. As a result, the repayment and servicing of the public debt as a percentage of current revenue fell to 8.7 per cent. Despite this, wages and salaries as a percentage of total current expenditure (inclusive of the amounts approved by the National Assembly for the revision of wages and salaries), remained at approximately 25 per cent, as shown below:
2010 2011 2012 Budget 2013
$M $M $M $M
Total current expenditure 92,649 103,961 118,256 122,965
Total wages and salaries 23,685 26,506 29,372 33,534
Percentage 25.6% 25.5% 24.8% 27.3%
Conclusion
The Government has argued that the five per cent across-the-board increase in wages and salaries for public servants in 2013 was one based on affordability. However, from the above analysis relating to the Government’s financial performance as well as its cash position, the argument does not have merit.
It is unfortunate that the Government continues to ignore the pleas of the Union for better wages and salaries. The failure to invoke arbitration proceedings because of the deadlock with the Union on the quantum of the increase also reflects badly on our system of governance. One hope that the protest marches that are currently taking place against the five per cent increase will bear some fruit so that public servants, especially those at the lower end of the scale, can benefit from improved wages and salaries. After all, public servants keep the engine of government spinning, and a highly motivated workforce is an indispensable ingredient for upholding good governance practices, and the highest degree of transparency and accountability that are so badly needed in this country at this time. Meanwhile, we eagerly await the details of payments made that are unrelated to the revision of wages and salaries approved by the National Assembly.
