Indiscipline in the granting of budget salaries undermines the reduction of inflation

The year 2024 started badly in Europe with farmers and transporters protesting. In Romania, we also have threats of strikes by employees from the various public sectors, dissatisfied with salary incomes, the last in line being those from the town halls of the communes.

Romania has committed to adopt a new public sector payroll law, which, however, is delayed in being debated, adopted and applied. In its absence, the government punctually "resolves" the grievances accumulated in the public sectors, depending on the risk that the announced strikes pose to society and the economy. The general perception is of disorder in the salary policy in the public sector, with consequences for the private sector as well. For example, income increases from the public health sector are taken over, almost automatically, in the private health sector, as a result of the existing tensions on the labor market in this field.

The seeds of this disorder were laid already in 2017, when, as a result of a social democratic initiative, of socialist inspiration, the Framework Law on the remuneration of personnel paid from public funds was adopted (Law no. 153/2017). Through the respective law, salary income increases were provided, their absolute size being specified, which had to be reached in the year 2022. The fact that Romania's economy is an open market economy, subject to economic cycle fluctuations and strong connected to the economy of the European Union. Confusion has been made between a political program of a political party, through which public policy commitments and salary income increases can be made, and the legal obligations assumed by the state by legislating these commitments. While the realization of a political program is sanctioned by voters, the legal obligations of the state assumed by law can be resolved through strikes and legal actions. Only in socialism was it possible to have a law that provided, for a few years before, the increase of salary incomes, in the conditions of a closed economy, isolated from the fluctuation of external prices, through mechanisms of centralized redistribution, with fixed prices, which were modified by administrative decisions, at intervals large amounts of time, resulting in a shortage of goods and services.

The economic reality was stronger than Law 153/2017. The crisis triggered by the COVID pandemic, the energy crisis, the war in Ukraine made it impossible to apply the provisions of Law 153/2017, regarding the salary income levels that had to be reached in 2022. In practice, depending on the "firepower" of the various public sectors, there was a one-off increase in salary incomes. In this way, unjustified differences appeared in the size of salary incomes for employees with similar qualifications, both within the same public sector and from different public sectors. Moreover, the justice system in Romania, which has no responsibility in ensuring macroeconomic balances, began to do "justice", establishing through court decisions various income increases and compensations, due to public sector employees who addressed to justice. This kind of specific "solutions" to wage protests, by allocating additional budget funds, unaccompanied by the necessary reforms, do not lead to better performances for the public services provided by the respective sectors.

Recently, in support of wage demands, a trade union reminded us of the figures published by Eurostat, according to which, in the European Union, the share of added value belonging to workers is 47 percent, and that to capital 42 percent, while with us, only 35 percent would be workers' compensation and 56 percent would go to capital. The statistical figures are correct, but, in the case of Romania, they do not reflect the economic reality. The results reported by micro-enterprises and PFA are statistically registered in the right of employers, while, in most cases, they actually cover income of a salary nature, for the current consumption of families, including personal expenses that should not be recorded on micro-enterprises and PFA.

We ended 2023 with a major deviation from the assumed macroeconomic balances, primarily through the budget deficit of 5.68 percent of the gross domestic product, compared to the 4.4 percent initially foreseen. From this point of view, the year 2024 is also extremely tense, because the 5 percent deficit is also based on a reduction in tax evasion and an improvement in the collection of revenues to the public budgets of about 20 billion lei (respectively 4 billion euros).

The anticipated reduction of inflation from the end of 2024, below 5 percent, compared to 6.61 percent at the end of 2023, will only be achieved if the policies of punctual "resolution" of wage claims in the public sector are put an end to. , through the adoption of the new law on salary income in this field. It is one of the most difficult laws that will arrive in the Romanian Parliament, because the main mission of this law is to establish the ratios between the levels of wage incomes in the different public sectors - by reference to the minimum wage in the economy -, to put order in the disorganized salary increases and to achieve the desired, always promised, but never fulfilled, to differentiate incomes according to performance, as much as is possible in public services. In any case, the mistake of 2017 should not be repeated, so that the Law stipulates what level of salary income we will reach, for example, in 2030. The gravitational force that links the evolution of salary income to that of productivity cannot be ignored for a long time, without harmful consequences for inflation and people's living standards.

It should be noted that the battle to reduce inflation in Europe, as well as in Romania, is not over, even if the latest reported figures show a substantial decrease in price growth rates. The main central banks - the American FED, the European Central Bank, the Bank of England - although they have started to signal future reductions in monetary policy interest rates, they remain extremely cautious. The multiple uncertainties regarding the evolution of economies are taken into account. Moreover, starting from the initial erroneous assessments of the inflation explosion, as being "transitory", these central banks are revising their forecasting concepts and models. In this sense, Christine Lagarde, president of the European Central Bank, states that "we can no longer rely only on the cases from the profile books and on pure models. We have to think with a wider horizon". The Bank of England's initiative to request the support of the renowned economist Ben Bernanke, former president of the American FED, is also significant, in order to reevaluate its capacity for forecasting and communication.