public sector wage bill continues to be the biggest threat to government expenditure, as a recent analysis by the Graphic Business (GB) revealed that wages and salaries for public sector employees consume almost half of all taxes collected every year.
In 2017, when tax revenue totaled GH¢32.2 billion, wages and salaries for public sector workers rose to GH¢14.4 billion, equivalent to 44.7 per cent of the year’s total taxes.

This meant that of every one cedi collected in taxes last year, 44.7 pesewas was used to pay public workers, leaving behind some 55 pesewas for debt servicing, statutory payments, capital expenditure and social intervention expenses, among others.

The 2017 wage bill was expended on some 650,000 people working in the public sector. The GB’s analysis from fiscal data obtained from the Ministry of Finance further revealed a strong double-digit growth in the wage bill on an annual basis compared to total economic output, measured by gross domestic product (GDP), which has experienced single-digit over the past six years.

Unlike annual GDP growth, which averaged 6.1 per cent between 2012 and last year, the data revealed that annual growth in the wage bill averaged 16.7 per cent within the six-year period – more than twice the rate of GDP growth.

From GH¢6.7 billion in 2012, the amount used to pay workers rose to GH¢14.4 billion in 2017 and is now estimated to end this year at GH¢16.8 billion.
The newspaper further found that the growth in the wage bill is often pronounced in election years compared to any other year.

A professor of economics and Head of the Economics Department at the University of Ghana, Legon, Prof. Peter Quartey, said in an interview that the huge disparity between the annual growth in the wage bill and GDP showed that “we are paying wages but not increasing productivity.”

“The normal thing in basic economics is that in setting wages, your wage rate should be equal to marginal productivity so that anytime your productivity goes up, your wages will go up and the same way when your wages go up, then it means there has been an increase in productivity,” he stated.

But contrary to that, he said various analyses showed that the country was not matching increment in the wage bill to productivity, something he said “is not a good sign for a growing economy and for an economy that wants to achieve greater heights.”
“It is a major flaw in our system,” he said, explaining that a chunk of the wage bill could be trimmed if the government could undertake a proper audit to clean the public sector of “disguised employees” who are paid for virtually no work done.

Last year, the government said it saved some GH¢433 million after detecting and removing some 26,000 ‘ghost’ workers from the public sector payroll.

Hiding govt’s weakness
In spite of the large size of the ratio of wage bill to tax revenue, organised labour has long maintained that the salaries of public sector workers in the country are the lowest compared to the amounts received by their colleagues in other countries.
While stating that the ratio “appeared big,” the Secretary-General of the Trades Union Congress (TUC), Dr Anthony Yaw Baah, said in a separate interview that it was deceptive to make a conclusion just by looking at the ratio alone.

“If government is not able to mobilise enough, it will appear that they are using too much to pay public sector workers and in doing that they will be hiding their weaknesses.
“The government should stop putting the blame on workers and collect the taxes.

“Ghana is now a middle-income country yet the tax revenue as a percentage of GDP is quite low, but the reason why Ghana became a middle-income country is because of the relative quality of service we provide and many other things.

“So, if you just compare the ratio of public workers’ wages and salaries to tax revenue, you may be losing some points because you are not also looking at the quality of the service,” he told the newspaper on April 30.
Should tax revenue improve and every deserving tax collected, Dr Baah said the ratio would slump “but workers will still be paid well.”

With the average wage of a public sector worker in the country still less than GH¢1,000, the Secretary-General of the TUC said it was deceptive for one to say that the wage bill was unduly high.

“The pay in Ghana is still below the standard. For instance, our doctors are currently receiving around GH¢4,500 but taking care of an average of 10,000 people,” he said, explaining that doctors in other countries receive more but cater for less patients.
Impact on GDP
Although the wage bill has remained strong, the data showed moderation in the ratio to tax revenue over the last two years.

From 47.1 per cent in 2016, the data showed that the ratio between the wage bill and tax revenue reduced to 44.7 per cent in 2017 and is now estimated to end 2016 at 43.1 per cent.

With unemployment still bulging (ISSER estimates that 90 per cent of graduates do not find jobs after their first year of graduating) in the midst of bearish revenue inflows, nothing shows that the wage bill will witness significant declines in the near future.

Although increased public sector employment is good news for the jobless, Prof. Quartey, who is also with the Institute of Statistical Social and Economic Research (ISSER), said it could complicate the challenge facing macroeconomic indices.

He mentioned the strong growth in the debt stock, declining investment in capital expenditure and government’s continuous indebtedness to statutory funds as some of the signs.

Credit: Graphic Online