The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has “contradicted itself” over last week’s industrial agreement with the Bahamas Public Service Union (BPSU), a leading private sector executive saying its inflation “fears have been realised”.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that the BPSU deal went against the Government’s stated position that Value-Added Tax (VAT) would not spark wage increases “above the norm”.

The $800 increase in the annual civil service minimum wage, from $10,700 to $11,500, is a 7.5 per cent rise - the same rate as the Government’s proposed VAT.

Yet the Christie administration has predicted that the initial inflationary impact from VAT will only be 3-4 per cent, meaning the minimum wage increase included in the BPSU agreement is indeed “above the norm”.

Mr Myers agreed that the BPSU deal would likely increase wage rise expectations among unionised workers in both the public and private sectors, and in non-unionised businesses.

He warned that if these translated into salary increases beyond the Consumer Price Index (CPI) inflation rate, the Bahamas could then suffer “real inflation” via the wage/cost push route.

And, given the background of weak growth and numerous government-related initiatives set to increase the cost of doing business, the BCCEC chief reiterated his concerns about the implications this might have for the Bahamas’ economic competitiveness.

“There’s no doubt it’s going to have an impact,” Mr Myers said of last week’s industrial agreement. “The BPSU is getting wages up.

“What’s concerning is that the Government’s initial paper determined VAT will not be inflationary because it did not expect wage growth beyond the norm. The 7.5 per cent [in the BPSU agreement] is beyond the norm wage growth.”

He emphasised: “What’s concerning to me is that the Government is now involved in an agreement that is contradictory to the same position they held with regard to the inflationary pressures caused by VAT.

“The trend from doing this is for greater inflationary pressures, and the Government is now contradicting itself. More than likely, this is going to start inflationary wage growth elsewhere.

“If the Government does it, that’s going to put pressure on everybody. Does that put pressure on the rest of us? Of course,” Mr Myers told Tribune Business. “You work for the private sector for ‘x’, the Government for ‘y’; that comparison could cause wage inflation.

“It’s just important to remind them that they contradicted themselves in what they laid out in the initial VAT position paper. It was one of the issues we took them to task on. We said there would be inflation, they said no, as we would not have wage growth.

“But here they are stimulating wage growth, so our fears have been realised. A 7.5 per cent increase is a big jump.”

Based on 52 weeks in the year, and a 40-hour work week, the BPSU deal has increased the civil service minimum wage from $205.79 to $221.15 per week, or from $5.14 to $5.53 per hour.

BPSU president, John Pinder, thus appears to have got exactly what he wanted for his lowest paid members. For he outlined the deal he was seeking in an interview with Tribune Business several weeks ago.

“The Government has to look at increasing the minimum wage in order to keep people above the poverty line,” Mr Pinder said on June 12.

“I have been advocating for an increase in the minimum wage for the public service and the country in general. When you really look at it, the civil service is keeping this country afloat. More than 70 per cent of their salaries is going back into the economy through salary deductions.”

He added: ““Right now, the minimum wage in the civil service is far below what it should be......

“I think it is very important for the Government to be looking at this issue. Right now the minimum wage in the civil service is $210 per week. It should at least be $250 a week, $1,000 a month. The minimum a person in the civil service would get per annum is $10,700; it should be at least $11,500 and no less than $12,000 per annum.”

But the BPSU, as the largest public sector union, effectively sets the bar for all other government-related union negotiations/industrial agreements.

Mr Myers told Tribune Business that “real inflation” would be sparked if there was “wage growth across the board”.

He explained: “It’s a knock on effect. You’re getting increases in wages, increases in taxes. What does that [VAT] do to government spending? It’ll be 7.5 per cent higher. That’s a big number.

“Taxes are going to be higher. It’s shocking to me. It seems to be never-ending that the public has to pay a higher price.”

Mr Myers said the BPSU agreement would likely cause all employers to “evaluate and take a look”. And he pointed out that competition for skilled labour, with Baha Mar seeking around 5,000 hires by year-end, would further intensify wage-related pressures throughout the economy.

The likes of Atlantis, the Government and all other employers will be faced with increased salary demands as they “try and compete” with whatever Baha Mar throws at them.

Mr Myers, though, pointed out that wage inflation pressures were emerging at a time when the Bahamas could least afford them. They threatened to exacerbate the cost increases expected from VAT, National Insurance Board (NIB) rises and other proposed initiatives such as National Health Insurance (NHI).

“It’s not that it’s not warranted,” Mr Myers said of wage increases. “It creates a situation where, if you’re suffering from challenges of competitiveness regionally and internationally, it doesn’t help.

“It’s just that we as a nation have to look at this and understand what is happening. Right or wrong, if you’re less competitive and it’s not sustainable, it all comes crushing down anyway.

“We have to be very careful. It’s not so simple. You get a wage increase but higher unemployment; what did we achieve? Less stability and lower GDP growth; what did we achieve. It’s a very delicate balance. It reminds me of the saying: ‘Winning the battle but losing the war’.”

Mr Myers was backed by Peter Goudie, head of the BCCEC’s employment and labour division, who told Tribune Business that the BPSU deal may have given other trade unions “unrealistic expectations”.

“We don’t want them to put up expectations that aren’t realistic,” he told this newspaper. “They may have done a bit of it with this particular wage settlement, no ifs, buts and ands.

“This is just going to increase expectations for all the unions. It’s human nature.”

Meanwhile, there appears to be some confusion in government circles over whether the current $150 per week private sector minimum wage is also under review.

Michael Halkitis, minister of state for finance, said the issue was currently not before government, seemingly contradicting Shane Gibson, minister of labour and national insurance, who has promised that the review is indeed underway.

“I don’t think there’s any need right now for an increase in the minimum wage,” Mr Goudie told Tribune Business, “as this just increases people’s expectations. It’s not that the minimum wage will kill anybody; it’s just not the time to do it.”

He added: “I think unemployment may increase in the public and private sectors, and you’ve got a lot of companies saying they can’t afford an increase in salaries because they’re trying to save jobs.

“There’s also going to be pressure on the unions to strike, and we don’t need that now.”

Mr Goudie reiterated that with the private sector having to face VAT, NIB rises and a host of other tax and fee-related rises, plus potentially NHI, “the timing is bad” to look at increasing the minimum wage.