Report Nº: 106105/04/2024
The government pushed for the freezing of the salaries of legislators and senior officials. The objective is fiscal savings. The result will be the opposite. Low salaries deepen mediocrity and mismanagement of the State. It is necessary to have an orderly and efficient State with well-paid civil servants.
Among many controversies, the government pressured and succeeded in getting Congress to roll back an update on the legislators’ wages. This led to the accusation that the Executive was not following the same rule with the salaries of senior officials. In response to the escalation of the conflict, the President also ordered to freeze the salaries of the Executive’s senior officials and to request the resignation of the Secretary of Labor. The argument to support these actions is that “politics” has to set an example and take charge of most of the fiscal adjustment.
Simultaneously, the Ministry of Economy once again announced a fiscal surplus in February. In the two-month period January-February the primary surplus was approximately $3 billion and the financial surplus (after interest payments) was $800 billion. This is in stark contrast to the first two months of last year when the primary result was a deficit of -$400 billion and the financial result was a deficit of -$1 trillion.
The question to be asked is whether there is a connection between the adjustment of public employees’ salaries and the generation of fiscal surplus. For this purpose, it is convenient to perform the following exercise for February 2024:
These data show that the incidence of spending on legislators’ wages is insignificant within total public spending. It is even insignificant within the expenditures of Congress. Legislators are a minor part of the approximately 14,000 employees of the Congress. From the fiscal point of view, it is much more important to correct the excesses of employment –for example, the Congress library has 4,000 employees– than to freeze wages. It is an attractive measure to ingratiate oneself with the people, but contrary to the objective of lowering public spending in a sustained manner.
A good human resources practice is to have probity, honesty and qualified civil servants, in the number strictly necessary and committed to the efficient functioning of the State. A necessary condition to achieve this objective is remuneration in line with these requirements. Therefore, freezing salaries, particularly in a context of very high inflation such as the current one, goes against the objective of balancing public finances because it deteriorates the possibility of generating good management in the State.
So far in 2024, the largest reduction in public spending has been in pensions, not in public salaries. In general, the adjustment was made by increasing public spending below inflation. Within this loss in the real value of public spending, the loss of purchasing power of pensions represents approximately half. The decrease in transfers to the provinces (18% of the total reduction in spending) and spending on public employees (14% of the fall) had a lesser incidence. One of the main weaknesses and sources of concern is that when inflation falls –which is the objective sought with the public finance surplus– public spending will grow again. To achieve a more genuine and sustainable surplus, it is essential to achieve a comprehensive reorganization of the State, where the professionalization of public management is central. Excellence in the management of the State is the opposite of frozen salaries with excessive public employment.
Changing the organization of the State is an enormous challenge. Highly qualified and committed teams are needed, with the capacity to innovate, break inertia and fight against spurious interests. Arbitrarily freezing their salaries is an opportunism that distracts attention and makes it much more difficult to reach the goal of sustainable fiscal balance with efficiency and professionalism in public management.
