Could Costa Rica become another Greece?
The old Ronald Reagan-era slogan, “Government is not the solution, government is the problem,” has unfortunately become very applicable to Costa Rica. A look at the numbers and salary levels of Costa Rica’s public sector employees shows that out-of-control expansion of the government payroll is now the biggest internal threat to Costa Rica’s prosperity and economic stability.
The above chart outlines the basic drivers of the fiscal problem caused by Costa Rica’s public sector payroll. First, whereas private sector job growth rises and falls with economic conditions, the public sector payroll expands regardless of economic conditions.
Second, public sector manual, clerical and middle management jobs pay more than twice the private sector equivalent. The result is that among workers insured by the Costa Rican Social Security System, or Caja, the public sector headcount is 26 percent of employees, but these take home 45 percent of payrolls.
There are two government offices most directly involved in budgeting and monitoring public sector spending: the Finance Ministry and the Planning Ministry. The 2013 Costa Rican national budget presented by Finance Minister Edgar Ayales is ₡6.4 trillion ($12.8 billion), a 7.5 percent increase over 2012, with a deficit at a projected 5.26 percent of gross domestic product, the third year in a row over 5 percent. This budget is now under evaluation in the Legislative Assembly.
The Planning Ministry, in charge of coordinating Costa Rica’s ever-growing public sector (now up to 344 institutions) is the best place to go to try to understand the nuts and bolts of how the various parts of the government interact. It is so strategic that the list of past planning ministers is a Who’s Who of Costa Rican politics: Ex-President Oscar Arias, ex-President Miguel Ángel Rodríguez, National Liberation Party President Bernal Jiménez and Citizen Action Party founder and three-time presidential candidate Ottón Solís.
The incumbent planning minister is Roberto Gallardo. With a political science background, Gallardo launched his career in 1981 as a professor, and later, adviser to the rector at the University of Costa Rica. He is well-experienced in economic planning, serving as planning minister in the second Arias administration (2007-2010). In President Laura Chinchilla’s government, he started as communications minister before moving back to the Planning Ministry in 2011.
The Tico Times visited Gallardo at his San Pedro office on Oct 1.
TT: Thanks for having us, Mr. Minister. I saw the photos on the wall of past planning ministers when I came in. That’s quite a list.
RG: Yes, it is. I’m a political scientist by training, and this ministry has been a fascinating learning experience as to the inner workings of the Costa Rican public sector.
Here’s how we’ve analyzed the public sector payroll problem (shows chart above). Any comments?
Based on your Caja data for health insured workers, your 26 percent of the national payroll in the public sector overstates the situation. We should consider private sector uninsured workers, which would drop the public sector portion down to about 15 percent.
Fair enough. Since we couldn’t get data on the uninsured workers, we went with Caja-insured public and private sector workers only. Within this limited sample, we still consider public workers with a 26 percent headcount participation getting 45 percent of the total payroll a telling disproportion. What makes public sector salaries so high?
The factor most affecting public salaries is all the “plusses” added to the base salary, which don’t exist in the private sector. For a private sector worker, if you give him a 5 percent salary adjustment, it’s 5 percent. But public sector workers acquire all kinds of special incentives on top of their base salaries. Things like seniority payments, “exclusive dedication” [committing to hold no other job], housing subsidies, “zoning” [for working in distant provinces], etc. So, for public-sector workers, a 5 percent increase in their base pay triggers equal increases in all their salary bonus categories. A 5 percent base-salary increase turns into an 8 percent or 9 percent real-pay increase.
Are salaries and plusses consistent in the public sector?
No, not at all. Each individual worker, depending on his profession and working conditions, can have a unique salary-plusses profile within a given institution. And the institutions themselves vary widely, not just in plusses, but also in base salaries and annual increases. Take a receptionist. We have detected salary ranges from ₡273,000 ($546) per month to ₡754,000 ($1,508) per month for similar positions within different government entities. For annual increases, programmed adjustments vary from 1.9 percent for central government workers to 5.5 percent for the University of Costa Rica.
With all these benefits, is there accountability?
Theoretically, yes. There are annual performance reviews in which work effectiveness is supposedly analyzed. In 2010, our office reviewed these evaluations. It turns out that of 160,000 performance reviews that we catalogued, only 13 were negative. Now, I am sure that the great majority of public employees are conscientious people who try to do a good job. But this disproportion of positive reviews [99.99 percent] shows that so-called performance reviews have come to be automatically positive.
So what can be done to control the public payroll?
This ministry is trying to take a first step with a bill to address the problem of the salary plusses. It’s called the Bill for Ordering of Additional Payments Attached to the Base Salary in the Public Sector. A draft is under evaluation in the Legislative Assembly.
Public sector unions have already come out hard against the proposed law. They have talked about “the mother of all strikes” in October.
Public sector workers should keep in mind that the law as structured will recognize acquired workers’ rights and apply to new hires by the government. We are purposely trying to force discussion on necessary homogenization of public payroll benefits. What we have now is not sustainable.
The government is certainly being brave in this. There are only 20 months to go in President Laura Chinchilla’s administration. She could have left this fight to the next administration.
President Chinchilla is nothing if not brave and principled. She fought the good fight for the tax package and it wasn’t approved. So, yes, that will be for the next government.
But with this issue of taming the public sector payroll, too much is at stake. Right now, 48 percent or 49 percent of government revenues go to public sector payrolls. If this problem isn’t dealt with, our projections have that proportion increasing to 60 percent by 2016. This level of structurally built-in public payroll costs would push fiscal deficits to unmanageable levels. Costa Rica would then be in danger of turning into another Greece.
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