The European Commission has given Malta a firm warning that the wage increases brokered with doctors back in November 2007 could have potentially disastrous effects on the country’s public finances in the years to come.
The warning that the deal could very well jeopardise the government’s budgetary goals for 2010 and beyond did not result only from the agreement itself, but rather from the dangerous precedent it set for other sections of the public service to individually renegotiate the terms of the public service agreement.
The state of affairs, according to the Commission, could not only lead to budgetary turmoil if other sections of the public service were to capitalise on the opportunity presented, but it could also dampen Malta’s competitiveness in the euro area should such a departure from wage moderation in the public sector spill over to the private sector.
In its assessment of the government’s updated stability and convergence programme and in its excessive deficit report on Malta this week, the Commission underscored on a number of occasions how its renegotiation of doctors’ salaries presented a serious risk to the public coffers.
The irony of the whole matter is that as of last month only two out of a total forecast of 600 doctors had taken up the offer to forego their private practice to dedicate themselves fully to the public service. The doctors’ new pay scales are due to start in 2010 and 2011, and provide for hefty wage increases and other incentives for specialists and consultants to leave their private practices.
The Commission did not mince its words this week, observing, “There is a risk to both budgetary forecasts for 2009 (the government’s and the Commission’s divergent estimates) arising from the possible demonstration effects of the recent health sector wage agreement on other segments of the public sector.”
Placing the long-term sustainability of Malta’s public finances at medium risk, the Commission underscored: “Malta’s competitiveness within the euro area may be at risk in the event of a departure from wage moderation in the public sector, which may spill over to the private sector.
“Moreover, competitiveness remains vulnerable, especially if higher compensation in the public sector causes overall wages to move out of line with productivity.”
In its assessment on the health of Malta’s public finances, the Commission pointed out that the country’s higher wage bill for health care – in terms of both average wages and staff levels – may not only “derail consolidation plans as evidenced in 2008”, but may also “lead to pressures to grant higher wages to other public sector employees”.
Moreover, the Commission notes a number of other risks related to Malta achieving its medium-term budgetary targets by 2010, among which was the government’s “lack of information of the underlying measures, in particular as regards the envisaged continued restraint in the public wage bill”.
In addition to the uncertainty over s, “For 2010 and 2011, an additional risk factor is the lack of information on measures underpinning the consolidation process, in particular as regards the envisaged continued restraint in the public wage bill. The risks to the deficit projections imply that the debt ratio could turn out higher than expected in the (updated stability and convergence) programme.”
As such, the Commission called on Malta to “spell out” the measures supporting its planned fiscal consolidation, especially on the expenditure side so as to reach medium-term public debt objectives, as well as to “enhance the efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform”.
The Malta Union of Teachers president John Bencini had raised the issue as far back as November 2007, when he accused the government of “changing the playing field” of the public service collective agreement, which became effective 1 January 2005, after it allowed another union to unilaterally renegotiate its salary scales.
At the time he had remarked, “what is good for the goose is good for the gander”, and questioned whether teachers could now attempt striking a similar deal so as to better their own pay scales.
Mr Bencini described the precedent, which had seen doctors being offered in some cases double their previous salaries as an enticement to dedicate their efforts solely to the public sector, as having created a “serious problem for industrial relations”.