Thursday, 15 July 2010

Public/Private Earnings Disparity

Yesterday I read the news that employment in the public sector was far better paid then employment in the private sector. The article in the Chronic did not mention whether the comparison was inclusive or exclusive of other benefits, e.g. pay related gratuity and pension. It must be assumed that it did not but that it was a direct comparison of earnings only.

One should not begrudge that any person earns more than another and I do not but this sectorial differential is substantial, even if no account is taken of pension benefits. The disparity becomes huge when one does brings pension benefits into account.

These public employee salaries are funded, in the main, through direct taxation paid by the private sector and indirect taxation generated also by the private sector. The private sector depends on remaining competitive in order to sustain both profit and levels of employment. It is the private sector which, in turn, generates the wealth and tax revenues that sustain the ability of the government to employ public servants.

It is inconceivable that the private sector could sustain a major increase in cost such as would be required to achieve parity with the public sector. If there were to be pressure to do so, Gibraltar would be faced with a substantial and serious political and economic problem that would require brave and innovative solutions to allow its economy continues to prosper and provide to the government the revenue required to pay its public servants and those who have retired fron public service receiving pensions.

A diminution of economic activity and employment in the private sector caused by salary inflation could force a reduction in employment in the public sector and reduce or negative the affordability by government of public sector pensions. The private sector and employment by it is already threatened by the regressive revenue raising measures announced in the last budget.

If this scenario were to develop, public servants should understand the threat this would pose to their present very secure existence and retirement. This is a phenomenon that public servants in other countries have faced and are facing today, not least in Spain where a 5% salary reduction has been imposed on all public servants and in many EEC countries in which substantial pension reforms are in process.

There is no doubt that productivity in employment is also an important contributor to any economy. There is no mention, in the Chronic article, of any comparison between the productivity of the public and private sector. Undoubtedly there are highly productive persons in both sectors. Anecdotally, there is a widespread belief that, generally, those employed in the public have an easier ride throughout their careers than employees in the private sector. Whether such a belief is true or not is irrelevant. The existence of the belief is sufficient for that factor to increase pressure on salary levels in the private sector.

The private sector cannot operate without an efficient and productive public sector. There needs to be a clear understanding of that. Public employees are "civil servants". This means that they serve and are paid for by the public at large. Brave political decisions and action will be required to redress the disparity that now exists. Those decisions cannot be such as would disrupt Gibraltar's competitive edge and its ability to survive as an independent economic unit. Further any reforms should ensure that the public sector provides an efficient and competitive service to the whole of Gibraltar in order that the private sector can operate efficiently to produce the economic wealth required to sustain the public sector.

The need to achieve a new relationship between public and private sectors becomes even more urgent in the face of the bad world economic situation. No one should proceed on the basis that Gibraltar will avoid every effect of this. Historically economic downturns in other countries have arrived in Gibraltar with a time lag of up to 18 to 24 months. There are small signs in the private sector that this is now starting.


  1. As a private sector employee, one of my utmost concern is that I will not receive a reasonable employment pension when I retire.
    Having had to change jobs a few times during my working life with its ups and downs it has not been possible to get a pension from any of my employers. Since my PAYE contributes to civil servants pay and pensions, surely Govt should find a way to have the long suffering private sector employees who do not have security of employment get some sort of pension.

  2. Anon, I feel the same as you do being a private sector worker; I'll have to retire when I'm 80 by the looks of things.
    LW, the article you refer to in your blog also showed the disparity of women's salaries as opposed to men's. Why oh why does this continue happening in the 21st century, and if you dare mention it in the workplace you are branded as a 'moaning bloody woman'.....

  3. Hi Rebecca

    Agree with you on the disparity between men and women but I wanted to highlight that public servants owe their employment and pay to the private sector yet they earn so much more. There is something wrong there that needs to be addressed and corrected by politicians. If it is not there will be political and economic repercussions.

  4. Mark A, Independent Commentator16 July 2010 at 11:23

    Well, yes, but remember that this blog topic refers to the leader in the Chronic and journalists are traditionally insanely jealous of anyone who earns more than they do. That's why they try and cut everyone else down to size. Just look at the UK tabloids (and Telegraph too now). The grass is always greener; that's why journalists would love to be working for Government - and often end up doing so if they possibly can.

    Chronicle Editor Dominique Searle described his workplace in the 5 January 2010 issue of GibMag as a "permanently-understaffed hyper-stressed long-hour prison" and in the 10 Feb 2010 Chronic decried the"malaise of summer hours, unlimited overtime, lack of productivity, absenteeism and inflated unjustified wages" and "two-tier society where the private sector, the wealth-generating nucleus of the economy is crucified with taxes to keep uneconomic public structures afloat" (Paco's comments were contained in an analysis of the GBC review but can be understood as being applicable to the public sector in general - I think that was his intention).

    So the leader has to be seen in the context of journalists' insane jealousy. Nevertheless, there are two things we need to remember:

    1) How can we ever narrow the private / public sector wage gap if we are unable to, as Rebecca rightly says, narrow the gender wage gap, which should be much easier to do?

    2) Public sector workers pay their taxes regularly on a monthly basis via PAYE whereas, according to the Principal Auditor, based on information provided by the Income Tax Office, tax evasion by way of greatly undeclaring income among private sector is rampant with professionals allegedly among the worst offenders. So the private sector needs to come clean on taxes before it can even begin to discuss the private / public average-salary gap. It would help all round if they all paid their dues.

    But let's not knock the Chronic too much. ‎"Reading the Chronicle whilst having my first cup of coffee is the ideal start to the day" said Tito Valerga in a letter to the Chronic on 5 Jan 2010, on learning that the daily paper is on the brink. "Life without the Chronicle would be unbearable," he said. I am sure we all agree with that sentiment.

    And the Chronic does occasionally come up with a surprising gem, such as "...the Theatre Royal continues as a Roman-styled ruin of white-elephant proportions" (Chronicle editor, 31.12.09) so it's well worth 50p (price hasn't gone up in years), even though it's journalists would give anything to work for Government.

  5. Hi Mark A

    You are being very unfair on the Chronic. The figures it quoted were independent and tell the whole story. There is no getting away from that basic fact. I agree that public servants pay PAYE but, first so do employees in the private sector and second PAYE paid by public servant is a discount to the government rather than a net gain, although for the taxpayer, this makes no difference..

  6. With all the Government spending these days it's easy to forget that the government does not create wealth, it fact our Gov spends money as if there was no tomorrow; but whatever the government gives to some it takes from others. This is where the tax system is designed to do; it really is the distribution hub for transfer of funds!

    When government spends money, it simply takes that money from one place (taxpayers) and moves it to other areas like the public sector, for things like building roads, those lovely roundabouts and building fantasy airport buildings etc. On the other hand when private individuals or businesses spend money, that money always has the potential to create wealth as they choose the best use between competing businesses.

    Private economic spending is usually done with a greater amount of thought, simple because it is money that actually has someone’s name on it. This is in contrast to Government spending, where well trained Government Olympians dive into the sacred public pot; funds that represent thousands of financial faces in the community, and which unfortunately does not receive that same level of economical love and attention as on private side of things.

    In many cases Government creates no net increase in jobs, it only removes wealth from those who are willing to work, the Gov than justifies its own capital gains (the money it has mostly removed from the poor underpaid worker) by pretending to offer solutions to the very people it has taken it from.

    Although to be fair certain spending is justified in some areas as society needs schoolteachers, police officers, firemen and court judges’ in order to run as a successful and safe community, but where does this money come from, yes you guessed it!!

    Intentionally or unintentionally and looking at things in the short to long term, it all appears as just a broad attempt to spread division amongst working people, this time between public and private sector workers, this by presenting retired public sector employees as the “pensions’ aristocracy”

    But it gets more frustrating when you think and this is where people have to be reminded, that some public sector employees are generously rewarded for persistent failures we all witness most days, something they would never have got away with in the private sector!!

  7. You are right, LWRV, private sector employees are taxed on PAYE but two problems arise:

    1) There have been or are serial offending firms who collect income tax and social security contributions from their employees but withhold them from Government for months if not years - unless they go bust in which case the Govt never gets them.

    2) Many private-sector professionals register as "self-employed" so their taxes are not collected regularly via PAYE. They are serial underdeclarers, according to the Principal Auditor, hence his allegation that tax evasion among professionals such as accountants and lawyers is rampant.

    Sure, the new tax legislation will start off in leaps and bounds - but like everything else in Gib it will flag with time and everyone will slip back into their old bad habits, as soon as the Income Tax enforcers begin to tire.

  8. Huge Public Sector salaries are apparently up to 40% higher than those of us in the 'second class' Private Sector.This is immoral!!!

    Add to that 'jobs for life', early retirement, Summer hours, 'regalias' and fat pensions and the gap becomes a chasm!!!!!!

    On top of all that Minister Netto (a Public Sector employee for many years) has the nerve to say (when questioned about the imprisoned 14 year old girl) that Gibraltar is too small to deal with all eventualities. Amazing!!

    Then maybe it's time to impose a pay freeze on the Public Sector and use the money saved to redress the deficiencies the Minister apparently believes exist??

    Additionally, if that pay freeze was kept in place for about twenty years (?) the under-privileged Private Sector might eventually start to enjoy a modicum of 'parity' with the more fortunate in our society....Max

  9. Hi Mark:

    I answer using your same numbering:

    1. This is down to lax collection and too much leeway being given. PAYE and Social Security must be collected. If it is not paid appropriate stern action taken. If there is political interference to prevent that public servants should remember that they remain responsible (not any minister) and it is the Civil Servant who, in extreme circumstances, is liable to be surcharged, which means he pays out of his own pocket. What is missing is this type of accountability in the public sector. Time to introduce it, I wonder?

    2. There is no excuse for tax evasion catch a few and see how soon it will stop.

  10. When will we have a political party with the guts to deal with the disparity between the public sector employees ( this includes Gibtelcom, AquaGib etc etc) and the private sector employees; and I mean the ordinary employee, not those who are self employed earn a lot of money and pay litte tax (believe me there are many)

    We cannot continue in a small place like GIB to have such a division in job security, pay, pensions, conditions of service etc.
    Not one political party will dare tackle this matter

  11. Thanks for another interesting read LW. I'd just like to add a few comments.

    There is no doubt that there are substantial financial differences and pressures between the Gibraltarian public and private sectors. I would also say that the private sector has been feeling the strain of the world wide financial malaise for some time now and not just in the last few months.

    Profit margins and business performance have been squeezed mostly due to factors external to Gib. The cherry on the icing as far as the private sector is concerned was the most recent negative budget and the cumulative effects of previous ones before it.

    You are correct in your analysis that our public sector is effectively bank rolled by our private sector. Max has also highlighted the many other ancilliary benefits of working in the public sector. It would be a prudent step for the Government of the day to not continue with the automatic annual increase of public sector salaries and to perhaps introduce an incentive or target based system.

    This would have several effects. It would firstly really annoy the public sector! It would also however bring in a healthy dose of reality and accountability in an otherwise potentially complacent environment. Salaries should rise on merit and productivity not as a matter of course in the public sector. This different approach should stimulate a more efficient working culture although I accept that many would still not lift a finger more than they had to.

    Government would then be able to ease up on the private sector by reducing rates etc.. Productivity in the public sector would rise at a reduced cost to the Gibraltarian private sector tax payer.

  12. Apologies, the quote above from the 10 Feb 2010 Chronic should have read "Paco (not Dom) decried the malaise of summer hours, unlimited overtime, lack of productivity, absenteeism and inflated unjustified wages" and "two-tier society where the private sector, the wealth-generating nucleus of the economy is crucified with taxes to keep uneconomic public structures afloat".

    And in response to Paco above (don't know whether you're the same Paco) I do not agree with setting "targets". That is what destroyed the NHS in the UK. NHS managers became so focused on trying to meet targets in order to secure pay rises and bonuses that patients seriously suffering, including many unnecessary deaths. Same happened with UK police forces etc.

    No, I'm afraid that is not the answer. I think what is needed is a culture change in a civil service that is overly focused primarily on three things: 1) overtime (guaranteed in many cases, even if not worked or necessary), substitution (i.e. acting for their superior when he or she is absent, often also guaranteed even when they do not fully perform the job of the absent superior, if at all) and promotion to a higher grade (and higher salary, of course). You'll rarely hear them talk about much else. That culture change must be led from above and Ministers did not exactly lead by example by awarding themselves hefty pay rises a few years ago.

  13. Hi Mark

    For the sake of clarity, I do not know who Paco is who posts comments here but I do know that he is NOT PACO OLIVA.

  14. Oops, missed out the numbering. Sorry, folks, here goes:

    1) overtime (guaranteed in many cases, even if not worked or necessary); 2) substitution (i.e. acting for their superior when he or she is absent, again often guaranteed even when they do not fully perform the job of the absent superior, if at all); and 3) promotion to a higher grade (and higher salary, of course). You'll rarely hear civil servants talk about much else.

  15. Rebecca..... 16 July 2010 08.53

    In UK paying women less than men was made illegal in 1970 and the same happend in Gib in 1975. An EU directive of the same year made it illegal throughout the EU.

    The law requires equal pay for work of equal value. Women on average earn less than men but simply because there are more women in low paid jobs (for eg. shop assistants ) but not when they are doing the same work.

    Gender Discrimination is illegal and has been illegal for the last thirty five years. There was also a time, around when that directive was implemented when expats used to earn more than locals regardless of gender.

    I find it difficult to believe, because obviously you are talking about Gib, that you could be " branded as a moaning bloody woman" in the work place" if you complain, when the employer is breaking the law. And with my limited knowledge of the law I would think that yuo are aiding and abbeting the law being broken by your silence in not reporting your employer to the Labour Inspectors.

  16. Spirit....Problem here is that Labour Inspectors are Public Sector and therefore don't really give a monkeys !!....Max

  17. On a more positive side I see that dozens of middle ranking civil servants, GHA executives and police officers have succesfully completed University of Durham MBA's. Hopefully this will lead to much needed improvements in public services. All the graduates appear to be middle aged so I suppose that some were hoping to move to the the private sector when they retired. As things are now going, the private sector is likely to suffer some contraction so I believe that the government should allow the more qualified and productive of these people to remain in the service for longer than the current retirement age limits.

  18. Hi LW and Mark. To paraphrase Al Murray, Paco is a true, proper Gibraltarian name which I happen to share with Mr Oliva who works for the Chronicle!

    Mark- I disagree with your analysis regarding not setting up an incentive or target based system for the public sector. I do however agree that ministers should set an example by not continuing to raise their already generous salaries on a frequent basis.

    I agree that there needs to be a working culture change within the public sector. This is plain to any end user of the public sector and has been for years. We also know that there has been no such change of working culture, nor is there ever likely to be one, unless a drastic shift in approach to the public sector is taken. By way of example, how many public sector offices can one still walk into only to be confronted by plumes of cigarette smoke wafting through the air? Wasn't a no-smoking ban instigated in the public sector some time ago? If a simple measure like this is just ignored, what makes you think that the public sector will willingly change something like prevalent working cultures?

    No, some variation of an incentive based system is the way to go. The NHS is a prime example of how not to do it. In this case, it didn't work because the targets that New Labour imposed on the different health authorities were unrealistic. Insufficient funding (although still very substantial) was made available for the ever increasing cost of health care. Also,many of the managers drafted in were from non-clinical backgrounds, not familiar with the unique requirements of running hospitals.

    Therefore, an incentive based system will work if it is directed by experienced, knowledgable people familiar with the environment in which they operate. If the public sector is not given a choice in this, then those who eventually acheive their astronomical salaries will deserve them.

  19. Max....Their very reason for existing is to control the Private Sector and protect workers from things like for eg. Gender Discrimination,
    Illegal Labour ect. ect. ect. in the Public Sector they are surplus to requirements, so if it is only to preserve their jobs I would have thought that they would be only to happy to listen to complaints.

  20. Changing the entrenched ways of the Public Sector will be hugely difficult.

    The last GSLP Government tried it
    (and failed) by abolishing many posts and limiting recruitment to that which was absolutely essential.

    Not surprisingly an indignant Civil Service went GSD overnight and the rest is history!!In my opinion PC sees the Public Sector as his 'core' vote and therefore will do nothing to upset them...In fact quite the opposite!

    Consequently the Private Sector will continue to be bled dry and the privileged Public Sector (who live in the 'alternative' world) will continue to enjoy all the benefits they don't really deserve and we certainly can't afford!!....Max

  21. Spirit....They may listen to complaints but do they act on them ??

    Illegal labour is everywhere but do you ever hear of the law being enforced??

    Far easier to turn a blind eye and enjoy all the benefits of being cushioned from the realities faced by those who are expected to work!!!....Max

  22. Spirit, I appreciate what you're saying and in an ideal world I would report the discrimination, my bosses would be forced to implement changes and pat me on the back for being such a conscientious employee and we'd all live happily ever after....

    Not going to happen.

    Most companies here are small, if you stand up too much for your rights you get sidelined, you cannot be moved to another department because there is no 'other department' and you have to work in close quarters with the people you 'shopped'. In the end you learn to live with it and are grateful that you have a decent enough job and hope to god that your company doesn't go bust.

    A job for life with summer hours and a big, fat pension would be lovely....

  23. Summer breeze says...

    I would vote for the party who in their manifesto promised to take the civil service in hand and turned it into what it is supposed to be... a place where civil SERVANTS work instead of a place of privilege where most spend their time chatting to friends on the phone, nip out to have haircuts or their nails polished and take sick leave "porque le pertenese" - meanwhile the general public (and taxpayer who pays for their wages etc) just have to wait. They have no idea (much less care) of the inconvenieces the private sector workers have to deal with because of summer hours - not to mention the public at large! And yes i know it is not everyone in the civil service who behave that way...but a very large number who do have that mentality.

    The reason I would vote for that party is because it would show that they have the courage to tackle an area that is a hot potato that no Govt so far has wanted to deal with in case it makes them unpopular. This would prove to me that the party has not only courage but shows that they are true to their word and not just after popularity votes for the sake of getting into power but because they truly care.

    Where is that party??? Does it exist???

  24. Summer Breeze

    You're right: that is one of the most serious problems afflicting the civil service. (Mostly female) civil servants spend an inordinate amount of time each day chatting to their mothers over the telephone. What is needed is the creation of a new 'Talking to Mothers' Department (sound-proofed, of course) so that those who are willing to work can do so undisturbed by the constant chatter around them.

  25. We llanitos and llanitas cannot help it, we are an envious lot, most of us would love to have a job in the much critized civil service.
    That they talk to their mothers!!! good for them, we love to talk about family values and how great Gibraltar is in that respect, caring for our parents, keeping contact ect. ect. yet we will begrudge them a few minutes on the phone.
    Civil Servants are mostly Gibraltarian and it seems to be an innate fault in our make-up to critize our own.
    Why don't we talk a bit about the Private Sector, banks for example where they deal with your problem in the middle of the bank within earshot of the next one in the queue and where expat employees do not even maintain eye contact, or shop assistants who do not even understand our lingo when we switch from one language to the other or when we say inches instead of centimetres, I could go on and on and on, in the Civil Service there are rotten apples like their are in all Government Departments from the Hospital to Convent Place but there are also some very good workers and they are mostly our own people. Lets develop a little bit of more "amor propio, que hay que darsela a nuestros vecinos" who exhude it from all their pores, and critize other things which are far worse than "si mi vecina trabaja o no".
    There are things which are so blatantly wrong in the Private Sector that it surprises me that we can be so petty as to critize phone calls in the Public Sector.
    Is Rebecca right in saying there is Gender Discrimination? If their is, all women with any sense of dignity should be up in arms. Is there so much illegal labour as they say? We should all be up in arms, for who does not know somebody who is unemployed? Tomorrow it could be somebody in your family. Are this things happening in the Public Sector? NO, they are happening in the Private Sector. So why don't we do something about it and stop being envious of secure jobs and pensions?


  26. Patuquita...

    You confuse envy for the tax payers right to expect value for money and the best possible service. In the real world employees are expected to pull their weight and get the job done and this would in all probability not include chatting to mum on the phone while the filing piles up.

    WE pay for their salaries why should we expect any less.

  27. Anon......... 23rd July 2010 23:25.

    We contribute to the wages of all Civil Servants, but do we really? I know that Civil Servants with the pay as you earn system contribute, and there are no buts about it. But does the Private Sector contribute as much as they say? All those arrears in income tax that the Government talks about in Parliament are they from Civil Servants? NO.
    Do all sectors of the Private Sector disclose everything they earn? NO.
    Is it a myth that some firms have two books of accounts, one for real and one for inspection? NO.
    Is it not true that we pay for all the business luncheons that lawyers and business men have with their clients? YES.
    Want me to go on ? I CAN.
    Of course I think you are envious,and if you are not envious you wear blinkers to see what it suits you.


  28. I have even misspelt my name, for when people sound so self-righteous I see red.

  29. Patuiquita

    Civil Servants certainly pay PAYE and Social Security. There is no doubt. The debate is about the CREATION of wealth, which is a pre-requisite to civil servants getting paid AT ALL. PAYE and Social Security paid by civil servants is in essence a discount on salaries from the wealth generated by private enterprise. This is a simple lesson that the public sector often fails to appreciate.

  30. LW..........

    I was answering Summer breeze and Gianni Toh who were certainly not debating about the creation of wealth.

    Now, I am answering you.
    What you say is only half the story. The Public Sector also creates wealth. If all the Private Sector Lawyers and Accountants had never been to school and received an education, how much wealth would they be creating now?

    The two biggest industries in the Private Sector are Construction and Retail.
    The first depends on all Government Projects and the second relies on Government Services, electricity, telephones, water, and civil servants as customers. When you take all that out, How much wealth is left? This is also a simple lesson that the private sector often fails to appreciate.


  31. Patuquita

    The public service certainly facilitates the creation of wealth, no argument there, that is one reason for its existence and I accept fully that without it there could be no wealth. There is a crying need for efficiency in certain sectors, however.

  32. LW......

    I think we can both agree on that.


  33. Patuquita...

    Envious ? ... Not at all. There are few people that I am envious of when it comes to employment and none of them happen to live in Gib.

    You make some valid points regarding the private sector and PAYE arrears, fiddling the books,etc, but this does in no way detract from the fact the tax payer has EVERY right to expect value for money where ever our taxes are spent... it`s OUR money.

    That the private sector has been allowed to pile up it`s tax/social insurance debts is of the govts own making. I would have thought that deducting these contributions from employees (as in Haymills for example) and not depositing them within govts accounts would be an offence. How was this allowed to happen and more importantly where were the relevant civil servants entrusted with recovering this money ?

  34. Anon.............25 July 2010 11:10

    The fact that you can be envious even if it is from people from abroad makes you not above the fact that you can be envious. Civil servants pay taxes as well "tocante y sonante" not like some in the Private Sector who talk about paying taxes but never pay them. In the civil service they know this very well, Company Directors who say they earn a pittance so as not to pay taxes and then you see them with maqnificant cars, houses in Spain ect. ect. If things like these "chocan" it's because it is unjust. We ALL expect value for money and if we ALL paid our taxes we would ALL be in a better position to demand.
    And something else before I forget, there is a saying from our neighbours which goes like this "siempre es bueno que halla ninos en la casa" because obviously they get the blame when anything is broken, and that is what you are implying in your post "blame the civil servant".
    Don't you know "que solo se le mete mano a quien el jefe supremo le da la gana" if you don't, wake up to reality.