Question: Hi, thanks for this story. Which wage hikes are in this bill? Which are not, but under discussion? I also understand that some wage hikes have already come into effect or are about to be implemented, which are these?
Answers: The wage hikes that already came into effect are those in the public healthcare system [25%, as of October]. The wages of top public servants [lawmakers, PM, President] were increased as well in July by an emergency ordinance that was meantime sanctioned by lawmakers -- but this is not expected to have major impact on public payroll.
A broader revision of the public wages [whole income policy] is envisaged by the government to be enforced as of January 2016. But it is running out of time. The draft of the bill, sketched in July, was not officially revealed yet, since it was not yet endorsed by government. But intermediary drafts have been circulated. Based on them, media speculated about the quality, or fairmess of the target structure of incomes [like one policeman earns two times more than a school teached, it's an imaginary example]. And the Fiscal Council speculated on the impact on the budget deficit. Possibly the Council wants, by its rhetoric, to convince government revise the bill -- as it was the case with the Fiscal Code.
The principle for this Public Wage bill is to set a "target" structure of "fair wages" accross the whole budgetary sector. And rise the wages that are relatively lower, proportionally, such as to have the wage structure converging to the "target" structure. High wages will remain constant. In the first year, the government wants to achieve 60% convergence to the target structure -- which is, to rise lower wages by 60% of the amount they need in order to be in line with the higher wages [discounted by the target structure indices].
When you write the government wants the lowest public sector wages to increase 60% of the way toward the target structure in the first year, how much of an actual percentage increase is this? 10%? 20%? What is the total increase goal?
I will be closely following future developments of the wage issue.
As a background, the Public Wage bill is a new and improved version of law 284/2010 that has been never enforced fully.
Based on the estimates below, the wage hikes prompted by the Public Wage bill would be huge – some 25% on average, very roughly speaking. The impact on fiscal deficit is estimated by the Fiscal Council at 1.4% of GDP. This reminds me the efforts the government has carried under previous SBA’s to cut the public payroll [it was 7.5% of GDP in 2014]. The main factor behind the 25% rise in the average public wage, is the rise in the minimum statutory wage – which has doubled from RON600 in 2010 to RON1,200 scheduled as of January 2016 and RON1,300 as of July 2016. This minimum wage has been preferred by the government to be also set as the “reference value” for the wages in the public sector – which is the value that, compounded with the index for each position results in the actual “base wage” [bonuses can be added on the top of this]. The two - -minimum wage and reference value, do not necessarily have to be the same, by the law. But since there are positions where the index is 1.0, this would breach the minimum wage specifications.
So the indices for each public position may have changed from those set in 284/2010 to the new ones set by the government [and they have, with the maximum index set at 13, against 15 under law 284/2010], but the main factor behind the expected wage hikes is the “reference value”.
During 2011-2015, the government has not enforced law 284/2010, but it has increased the public wages by more than 33% [nominal terms] so that to offset the 25% cut operated part of the austerity package in June 2010. Supplementary, it reached agreements with different groups to rise their wages – such as thee health care system employees recently, but also with school teachers last year. These negotiated rises were however limited to the hypothetic wages that the employees would have received under law 284/2010.
Notably, the Public Wage bill [2015 version] was not yet endorsed by government and if it is not enacted by the parliament, its massive impact cannot be reflected in the budget planning for next year – which has to be drafted by the end of October. So it is very likely that the government will delay the bill again – unless the Public Wage bill is endorsed quickly this month, and rely on discretionary wage hikes as it has done in recent years since 2011 – when the Unified Public Wage [284/2010] law was enacted for the first time. Really funny it was that the law 285/2010 – issued immediately after 284/2010, at Article 4, defers the effects of the aw 284/2010 for one year -2011. The public wage bills issued on an annual basis have done the same [deferring law 284/2010].
TECHNICAL NOTE [on impact of Public Wage bill]
As the Fiscal Concil [FC] estimated based on the Public Wage bill [i found a draft on sanitary trade unions’ site, but it’s Romanian, here: http://www.solidaritatea-sanitara.ro/documente/Legea_unica_de_salarizare_a_personalului_bugetar.pdf ], the gross fiscal impact will be RON15.5bn and the net impact will be RON10bn next year. FC’s head Ionut Dumitru has not specified whether “gross” includes all taxes and social contributions on incomes – or only those paid by the employees. But data is consistent with the later [employee’s contributions only]. From budget execution data from finance ministry [http://www.mfinante.ro/execbug.html?pagina=bulletin ] the total public payroll this year will be around RON53bn up from RON50bn in 2014. So the Public Wage bill’s impact is huge not only as % of GDP [RON10bn would be some 1.4% of GDP] but also compared to current public payroll.