By Candia Dames

Candiadames@hotmail.com

Nassau, Bahamas

31 October 2005

The government would have to resort to tax increases or increased borrowing if it goes too much beyond the $24 million in salary increases budgeted for civil servants this fiscal year, Minister of State for Finance James Smith has warned.

While stressing that he did not want to preempt ongoing negotiations, Minister Smith in a recent interview with The Bahama Journal said the government will have to be realistic in how it responds to the demands being made by the Bahamas Public Services Union (BPSU).

"We have got to look at increases in government costs in the proper context," Minister Smith said.

"Any increases in expenditure, including that for wages and salaries would ultimately have to be funded. We can do that either by using the existing tax base or increasing taxes or taking loans and beyond a certain level, for salary settlements, I don’t think the Bahamian people would enjoy paying additional taxes to go straight towards salaries and certainly it is not advisable to take out additional loans to pay salaries.

"That’s not good economics. What we hope would at the end of the day be the resolution to this series of negotiations would be to provide resources for the employees that would be consistent with good fiscal management. To do otherwise you would only be deferring doom for later on – two, three years out."

Minister Smith is a member of a special subcommittee of Cabinet Ministers the government recently appointed to look into the BPSU proposal.

Union President John Pinder has told The Bahama Journal repeatedly that the union’s demands are reasonable.

He recently burnt a copy of the government’s new contract proposal during a protest in Rawson Square.

While the government has allocated $24 million for salary increases this year, he said what the union is demanding will be well over $30 million.

Minister with responsibility for the public service, Fred Mitchell, said it would be around $36 million.

As part of the new contract the union is pushing for an $1,800 increase to the base salary of each civil servant in the first year, a pay raise which works out to $150 per month for one year.

But the government is offering $1,800 over five years – something Mr. Pinder said amounts to "a slap in the face."

He said recently, "We have a figure that we are stuck at and the government has a figure that [it is] stuck at so we are still trying to come to some agreement."

Earlier this month, Mr. Pinder led another demonstration in downtown Nassau demanding that the government budge from its position, and during the most recent demonstration last Wednesday, he warned that if the union has to, it would demonstrate again.

Following the first demonstration, Minister Mitchell announced the formation of the Cabinet subcommittee although he stressed that it was not a direct response to the protest.

In his recent interview with The Bahama Journal, Minister Smith – one of the government’s chief fiscal engineers – stressed that the government must remain focused on reducing its budget deficit while seeking to be fair to public servants – and taxpayers.

"We’ve already put out in the public domain – both domestically and internationally – that we propose over the next three years to target a reduction in the deficit and therefore any increases we give have to be consistent with that," he said.

"If it goes beyond a certain level then we have to match that with corresponding revenue because it would mean that expenditure went above what you were predicting and so you have to get the revenue to go up and so the public itself would have to basically be consulted on how much they’re prepared to pay any additional wage benefits to the public service."

In the budget communication to parliament in May, Acting Prime Minister and Acting Minister of Finance Cynthia Pratt said experts have advised the government to limit the ratio of government debt to GDP to as near as possible to 30 percent of GDP to avoid the problems which would arise from a ratio significantly in excess of that level.

She said this would be important to prevent a widening gap between expenditure and revenue.

Minister Pratt also indicated that if the ratio of government debt to GDP moves significantly above 40 percent, the scope for further government borrowing is severely constrained.

"In those circumstances the only options available to a government might be the painful taxation and expenditure options," she said.

It’s something Minister Smith said the government is trying to avoid.

"We’ve put a figure in [the 2005-2006 budget] that is allocated for first-year salaries," he said, referring to the $24 million.

"I think if you go beyond that then you’re inviting in some other variables.

At the same time if we see that the outturn is more favourable then certainly that would relieve something. But I don’t want to preempt the negotiations, only to say that the amount that was put in at least signaled that the government is prepared to give something."