70% of revenue spent on wage bill in six months

The government spent GH¢4.6 billion, representing 70 per cent of the country’s tax revenue of GH¢6.7 billion, as compensation payment to public servants from January to June, this year.

The compensation payment covers salaries, allowances and other benefits.

Wages and salaries alone accounted for GH¢4.3 billion or 64.2 per cent of the tax revenue and 92 per cent of non-earmarked tax revenue of GH¢4.69 billion.

If the trend does not change, Ghana will be heading to the point where its revenue from taxes will not be enough to cover compensation.

The Minister of Finance and Economic Planning (MoFEP), Mr Seth Terkper, disclosed this when he took his turn to present the fiscal imbalances in the economy, partly caused by the rising wage bill, to labour unions, government agencies and other social groups at the just-ended two-day presidential stakeholders’ forum.

The forum was facilitated by the Ministry of Employment and Labour Relations (MELR) and was attended by organised labour, employers, the National Labour Commission (NLC) and the Fair Wages and Salaries Commission (FWSC).

Sharing further implications of the trend, he said the payments had resulted in a drastic crowding out of expenditure on goods and services, as well as assets or capital, resulting in budget shortfalls of 51 per cent for expenditure on goods and services and 13 per cent for capital expenditure against targets.

“Also, investment in social goods has been affected. The increasing wage bill also has effect on the private sector. With public sector workers currently earning more than their counterparts in the private sector, the higher wages in the public sector are likely to build up private sector wages and squeeze private sector profits, leading to lower levels of investment, lower labour productivity and lower job creation in the sector,” the minister said.

He also explained that the trend might consign most employment avenues to the private informal sector.

In a comparison of the country’s wage bill to GDP ratio to those of other countries in the sub-region, the minister showed how Ghana’s ratio was far above those of its peers and the threshold for the ECOWAS convergence criteria.

For instance, Ghana was way above the wage bill to tax revenue ratio threshold of 35 per cent as a secondary convergence criterion for the ECOWAS, he said.   

Making proposals on the way forward, Mr Terkper said compensation, that is, salaries, allowances and other benefits of public sector workers, had to be subjected to budgetary constraints.

He also asked that increases in allowances be fixed and not be ad valorem, while annual salary adjustments should take effect from the month in which approval was given for the adjustment.

Further proposals made by him were that there should be effective linkage of public sector pay to productivity, effective audit and internal controls.

In line with that, he said, heads of ministries, agencies and departments should be sensitised to their responsibilities on payroll administration, saying that soon, payroll administration would be decentralised and placed under the direct control of agency heads.

By Caroline Boateng
Daily Graphic/graphic.com.gh/Ghana