Is a 14th Month Salary a Viable Proposition?

Electoral promises

While the government might resort to deficit financing to cover additional payroll costs in the public sector, there is no economic rationale for imposing additional labour costs on private sector enterprises…

By Prakash Neerohoo

In the run up to the next legislative elections, likely to be held between August and December 2024, many electoral promises have been made by both the parliamentary Opposition alliance (Labour-MMM-New Democrats) and the government. The 2024-25 budget contained a wide array of freebies (social benefits and allowances) and fiscal concessions to different segments of the population. It seems that this pre-electoral exercise of competitive welfarism is not over yet. We are likely to see more promises, some being more reckless fiscally, in the coming months as political parties scramble to secure the votes of the electorate.

One such promise catching public attention is the proposition to grant a 14th month salary to employees in the public and private sectors. The first person to float this idea was the leader of the PMSD who raised it in a question in Parliament while he was leader of the Opposition. Apparently, the promise of a 14-month salary would be one of the ideas to be coopted by a future alliance between the PMSD and the ruling party to give it an extra mileage over the Opposition. Since the government’s goodwill with old-age pensioners is being impaired by rampant inflation that is eroding their purchasing power, the temptation to appeal to active workers in general is irresistible.

If that promise makes its way into the political manifesto of an MSM-PMSD alliance, it could be a game-changer in the election if the electorate falls victim to such political baiting. But economically it would a hard sell to private sector employers. There is already a 13-month salary (end-of-year bonus) that is a permanent and irrevocable feature of employee compensation, mandated by law (under section 54 of the Worker’s Rights Act). Probably Mauritius is the only country that provides a 13-month salary as a vested employee’s right.

In 35 years of practising accounting and taxation in a developed country, I have not come across any public or private entity paying a 13-month salary to their employees as an acquired right, irrespective of performance or productivity. If employers are required to pay a 14-month salary, that would have serious economic implications for the country. As far as I recall, some companies in the sugar industry paid a 14-month salary in one year in the 1970s when high export sugar prices brought in substantial windfall gains. That was a one-time payment that was never repeated subsequently.

Public sector

What would be the impact of a 14-month salary on payroll in the public sector, which comprises central government, local government, para-statal bodies and State-owned enterprises? The central government has already a huge budget deficit of Rs 63 billion for 2024-25 (6% of GDP) which will be financed by more borrowings internally and externally. Public debt has already reached Rs 575 billion, or more than 80% of Gross Domestic Product (GDP). Para-statal bodies and State-owned enterprises are not faring well financially, as most of them are running deficits. The central government’s total employee compensation is estimated at Rs 42 billion for 2024-25 (for 13 months). One additional month of pay (14th)on public payroll would costRs 3.2 billion. Such a generous move without productivity gains would certainly be a huge drag on public finances for years to come.Read More… Become a Subscriber

Mauritius Times ePaper Friday 28 June 2024