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The feast with the public sector salaries, a time-bomb set by the…

The feast with the public sector salaries, a time-bomb set by the PSD. Who will defuse it?

The expenditure on public sector salaries has exploded. It is apparent even from the statistics put out by the PSD government. The question now is not if the government is going to start slashing public sector jobs, but when. The PSD government knows full well that it set up a time-bomb that could go off at any time, blowing up the budget, but it faces a dilemma. A reform of the public sector apparatus now will dangerously threaten its election prospects in the four upcoming rounds of elections. If it does nothing, it risks running a significant budget deficit and losing control of the economy.

The figures put out by the Ministry of Finance show that in the first quarter of the year, salaries of public sector employees increased by 25.7% compared to the same period in 2018; that’s a full quarter increase! And last year’s reporting base also grew by 18% compared to 2017, and so on. It is the effect created by the law on unitary wage in the public sector, which has caused an increase in salaries to unprecedented levels, not reflecting productivity and the private-sector wages in the real economy.

Let me be clear and say that wage increase is not a problem in and of itself when done rationally. No one can deny the real need for wage increases to teachers, doctors, nurses. No one can demand quality services from bureaucrats if they live pay cheque to pay cheque.

But a wage increase in the public sector must necessarily be effected in tandem with reforming of the hyper-atrophied bureaucracy which has been inflated to record-levels by the PSD. Here are the numbers provided by the Ministry of FInance of the same PSD government: in February 2019, we had 1.23 million public servants, with 32,000 more than in May 2017. And this for a declining population caused by accelerated aging and with millions of Romanians living abroad.

Reform does not mean just thinning-up the massive bureaucratic apparatus but also setting up clear and quantifiable performance objectives tied to the future promotion and wage increases.

But the PSD did not do any reform. It chose the easy way, which could prove dangerous in the long run: not only did they keep all the bureaucrats, but they hired tens of thousands more relatives, mistresses, and party loyalists who helped during the campaign. It transformed the central administration into a budget-monster that actually threatens the macroeconomic equilibrium. Now, the fisc cannot raise enough money to feed this rapacious „octopus” of kinfolk and mistresses.

The PSD did not only hire tens of thousands of inadequate people in the central administration, but it also found a new way of feeding the mouths of those dependent on the party: the appointments. The government and the ministries are teeming with nieces, cousins, wives, and mistresses detached to Bucharest from small towns in the province to fill high-paying sinecures. Whether sourced from local governments or obscure firms, these appointments have further burdened the budgets of the institutions.

Not only that, but the PSD has also halted the digitalization of large institutions (ministries, the fisc, etc.) programs backed financially by The World Bank, which would have reduced costs and personnel.

Eugen Teodorovici, the minister of finance, has been talking about restructuring the administration for more than half a year now. But talk is all he can do because the entire party would turn against him if he dared to try and restructure the administration. The party already scolded him that if he continues to talk about this, it will hurt the party’s election results on May the 26th.

Despite the warnings, Teodorovici is looking for ways to lower spending, according to sources from G4Media.ro. One way is to put an end to all the high-paying appointments that burden the budgets of central institutions, but the move is put on hold at least until after the European Parliament elections.

Another solution explored by Teodorovici is to merge existing institutions and to eliminate budgeted positions that are not yet filled. At the Victoria Palace, other solutions are evaluated, such as those taken by the Boc government during the economic meltdown, when only those positions freed naturally (retirement, death, migration, etc.) were filled and only at a ratio of one new hiree for every four departures.

What’s true is that the PSD’s concern is real. The sense of urgency grew after the Finance Ministry published its budget execution for the first three months. The budget deficit grew because the revenue cannot keep up with the spending.

You only have to add to this picture the increases in childcare allowances and the promised pension increases, and you can understand that the PSD is facing a critical moment.

If the PSD postpones these promises, it will no doubt lose significant percentages in the upcoming elections. If it does not make the reform, or if it just scratches the surface, it will have to further cut-down on investments even more drastically, putting a hard brake on development. There could be a third way: to increase revenues, but it is hard to imagine a miracle solution (a fiscal amnesty could quickly raise several billions of lei, but that would be insufficient for the pensions and the allowances).

But as we well know, the PSD has never been much for reforms, and the party’s current leadership is no exception. The PSD will most likely roll-forward this hot potato to the 2020 elections, leaving future governments to do the painful but necessary reforms as it did after the 1996 and 2009 elections. The PSD spends, others repair.

PS: What irony to begin reforming the administration by eliminating just one position, and that one honorary – Anca Alexandrescu, prime minister’s adviser, but loyal to Liviu Dragnea. A big step for the budget would be the dismissal of Dragnea’s other henchman installed at Victoria Palace, Darius Valcov, the man we owe so much for the many economic and fiscal missteps of the past two years. Government sources speak of a possible dismissal after the European Parliament elections.

Traducerea: Ovidiu Harfas

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