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Experts see political reasons in the state’s decision to increase public sector wages
Last weekend, Finance Minister Siniša Mali finally announced how much public sector employees will be able to count on the pay increase next year, and that prompted mixed reactions.
Photo: Stanislav MilojkovićSince January 1, Mali announced a salary increase of five percent for health workers and 3.5 percent for other public sector employees.
Starting in April, the rest of the public sector should receive an additional salary increase of up to five percent and reach doctors.
From the fiscal point of view, this increase in salaries, which should amount to between 4.5 and 5 percent per year, deviates considerably from the recommendations of the expert public, especially the Fiscal Council, which appealed to pay or freeze or increase inflation (around two percent) to preserve purchase value, but not beyond that.
His proposal was to wait a few months with significant increases, so that if the economy advances and a new wave of the epidemic does not break out, then more wage increases will begin.
The Fiscal Council did not want to comment on these announcements by the minister, considering that they are calculating the effects of the increase in public finances, but in the assessment of the budget revision for this year they warned that due to a significant salary increase in November 2019 (around 10%) in general government, reached 10.4% of GDP this year and thus significantly exceeded the long-term sustainable level of 9.5% of GDP (with salaries paid by indirect users of the budget, the salary fund reaches 11.4 percent of GDP).
They also pointed out that this could be the cause of the fiscal imbalances and that wage growth in the coming years should be “significantly lower than the expected growth of nominal GDP”, adding that in the previous three years wages increased by an average of slightly more of nine percent, while nominal growth was around six percent per year.
“As we can see, only one year of crisis was enough to confirm that these increases are unsustainable in the long term and that salary expenses clearly jump above the equilibrium level,” they point out.
Milojko Arsić, a professor at the Faculty of Economics, also points out that this year we had a salary increase in the public sector of about 10 percent because GDP growth of four percent was planned and that we ended up with a deficit.
“If something like this happens again, we will be in trouble. The increase in salaries close to five percent is relatively large, even if we take into account the increase in pensions, and interest costs will increase a lot because our public debt soared at four billion euros, all under conditions of very uncertain economic growth. It would be better to initially opt for a smaller salary increase and then, in the middle of the year, increase it more if the economy is doing well. It is not known how much the income will be, If the economy will be able to pay all the obligations that have been postponed this year, how many will go bankrupt ”, warns Arsić.
He points out that this decision could be influenced by the fact that the elections are scheduled for early 2022.
Petar Đukić, a professor at TMF and a member of the Scientific Society of Economists, also notes that pure populism is a rise in wages in a situation where production, employment and exports are falling, and the question is what will be the demand for our products next year.
“I know that the burden falls on doctors because of the crown, and I am in favor of paying them bonuses during the health crisis, but no one needs to increase their salaries until the salary levels are exhausted. The linear increase only prolongs this regime and increases the chaos for the future, “says Đukić, adding that economic policy cannot compensate for the lack of development strategy.
The basis for such an optimistic rise in state wages appears to lie in the belief that economic growth will hit six percent next year and, with inflation, nominally eight percent.
However, experts are quite skeptical about this. The Fiscal Council asked the state to adopt a more conservative growth estimate of four percent.
Arsic also points out that the six percent is too optimistic and that higher wages with lower growth could lead to squeezing of other expenses, mainly investments.
“Nobody votes for investments, and there are many ways to reduce them, postponing some works, etc.”, he concludes.
Last year, it will increase between eight and 15 percent.
In November 2019, salaries in the public sector increased from eight to 15 percent. The largest increase, 15 percent, was received by nurses and technicians, while physicians in health and science and culture employees each received a 10 percent increase. Education employees, judges, prosecutors, employees of courts and prosecutors, as well as workers of social protection institutions and members of the services and security forces received an increase of nine percent. State administration employees received an eight percent raise.
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