Plump paycheques

November 10, 2019

There is plenty of discussion regarding the military budget but have we really looked at civilian expenditures beyond politicians’ follies? How judiciously has the government spent tax money?

Plump paycheques

Equality is not only a moral imperative. It is critical for sustaining growth. – IMF

Tony Blair, a thrice- elected British prime minister, talked of the danger of state becoming a vested interest. Wonder if he had clairvoyance on Pakistan.

The government’s claim to initial economic success may not be convincing, but it has had amazing success in convincing everyone that government revenue is the primary indicator of economic achievement. The pundits in public discourse keep drumming this to their audience. As long as the government revenue grows, we are told, Pakistan’s economy is on the right track. The distinguished hired-hands steering the economy speak the same language, undeterred by the turbulence caused by massive job losses, and in some cases even lives, such as the truckers’ incident in Karachi. The confidence of the captains of economy is remarkable--and understandably so, as they have their golden parachutes which can help them fly and swim to safer landings should it all crash. They do not have a skin in the game and remain oblivious to the pain they are inflicting on tens of thousands of individuals every month.

Do the economic managers represent a foreign agenda or is this aspersion a helpful shadow behind which other actors carry on, without appearing in plain sight? What purpose is this unending appetite for revenue serving? We have this mountain of debt and some disproportionate security needs but is that all? There is plenty of discussion regarding military budget but have we really looked at the civilian expenditures beyond the politicians’ follies?

Has the government been really judicious in spending the tax money? May be the starting point of analysis should be a glance at the apex institution which in all sincerity, the nation sees as the benchmark of equity and prestige--the Supreme Court of Pakistan. The court had an annual expenditure of PKR 315 (USD 4.1) million in 2007-08, the year in which Gen Musharraf was forced out as president. In ten years, and two democratic terms later, it had climbed to PKR 1,817 (USD 16.5) million (2017-18) or increased by about 300 per cent in USD terms, in a period during which the GDP grew only by 85 per cent -- from USD 170 billion (2008) to USD 314 billion (2018). Over a decade the Supreme Court’s expenses grew more than 3 times faster than the wealth being created in the nation.

It can be argued that the increase in expenditure was to speed up justice in Pakistan and that one needs to dig deeper than the superficial totals. If we look at the details for 2017, for which data is easily available, the highest drawn salary, including judicial allowance, was approximately PKR 1.22 million per month. This excluded other benefits and perks such as domestic staff, unlimited electricity and other utilities. It was roughly 85 times the minimum wage of PKR 14,000 at that time.

The ILO defines the minimum wage as the basic non-negotiable minimum to "overcome poverty and reduce inequality" and it serves as a useful tool for pay differential in no matter which economy you choose. This multiple is especially relevant when the salary comes from the public purse, for it conveys a sense of equity and fair play. In UK, where there are hundreds of lawyers earning £ 1 million or more per annum, the Lord Chief Justice earns a decent, but not extravagant, £262,000 per annum (2019).The minimum wage @ £ 8.25 an hour comes to about £15,000 per annum and this makes the Lord Chief Justice’s salary about 17.5 times the minimum wage. If we look at US, the bastion of free market capitalism, and where annual salaries can run into tens of millions of dollars for top executives, the Chief Justice of the US Supreme Court draws an annual salary of USD 267,000 (2018), nearly 18 times the federal minimum annual wage of $15,000 ($7.25/hr).

These are developed economies, so one may argue that once Pakistan reaches a similar stage of development, our salaries would be in the same proportion. Coincidently, the situation is no different if we look inside our own peer group.

In Pakistan, the top judicial salary went from PKR 135,000 per month in 2008, to PKR 1.2 million per month over a ten year period, a 900 percent increase. The minimum wage was raised by 285 percent -- from PKR 6,000 to PKR 17,000 per month. It was during this time that the government went on a borrowing spree, and was obliged to share spoils with those who mattered. The minimum wage worker was not one of them.

India, Sri-Lanka, and Bangladesh are the largest members in our regional group i.e. the SAARC, as well as peers on our path to progress. On this account, however, they exhibit a pattern closer to the UK and US than Pakistan. The Chief justice of India drew a monthly salary of INR 280,000 (PKR 560,000) in 2018 which was approximately 21 times the minimum wage in New Delhi. In Bangladesh, the Chief Justice of Supreme Court drew (2015) BDT 110,000 (PKR 143,000)as against a minimum wage of BDT 5,300 per month at that time or 21 times the minimum wage. In Sri-Lanka, the Chief Justice was drawing LKR 370,000 (PKR 315,000) (2019) when the minimum wage was LKR 16,000 or a multiple of 23. Even allowing for lifestyle preferences and reasonable variances, the gap is so significant that millions are falling through the chasm.

Is Pakistan really the outlier or does it have company in the comity of nations. One interesting comparison for us would be Malaysia, our benchmarked brotherly country which shares the Islamic culture and has done a remarkable job with its economy.

The Chief Justice of Malaysia draws RM 36,000 per month (PKR 1.1 m) (2018) against a minimum wage of RM 1,100 (PKR 34,000) or 33 times the minimum wage. This is very high compared to multiples of 17-21 that we have seen earlier. The more interesting part, however, is the way the salaries reached this point in Malaysia. There was a hefty raise in judges’ salaries (nearly 50 per cent) by the Najib government in 2016. This was when 1MDB scandal started to emerge as the colossus of corruption. There is nothing to suggest that the pay raise was a bribe or that any of the Malaysian judges, noble justices all, had any inkling for corruption but it was the politicians’ way of helping judges lighten the burden of conscience. In Malaysia, political corruption and judicial rewards emerged as two sides of the same coin.

In Pakistan, we see a similar pattern. The top salary in judiciary went from PKR 135,000 per month in 2008 to PKR 1.2 million per month in a ten year period, or roughly by 900 per cent. The minimum wage shot up 285 per cent--from PKR 6,000 to PKR 17,000 per month. This was the same period when the governments went loose on a borrowing spree and were obliged to share the spoils with those who mattered. The minimum wage worker was not one of them.

The current salaries are not easy to find, but the most recent data on the Supreme Court of Pakistan’s website allows you to guess that the top salary at the Court could be in the range of PKR 1.5-1.7 million per month which would make it closer to 95 times the minimum wage. The disproportionate share, besides being a drain on resources and creating unsustainable expectations for those below, generates its own problems. It creates a pressure on the judiciary to do more than its remit. The result, as The Economist put it, is a "potential USD 12.5bn bill left by Mr [Iftikhar] Chaudhry’s energetic voiding of government contracts with foreign firms". The former chief justice, Saqib Nisar’s initiatives are fresh in our minds. His efforts to deliver on wide a range of issues, from pure milk to his Dam fund, resulted in bold but empty actions without changing the reality on ground.

The above data are not very scientific and have been collected over a slightly varying period, depending on the ease of availability. It excludes benefits, perks and tax-exemptions, which one fears, may worsen the ratio for Pakistan. A comprehensive study may be very useful for the Planning Commission but the one above indicates a fairly accurate pattern.

What is unfair in the above example is that it singles out the office of the Chief Justice. Unfortunately, elevation attracts lightning. The office of the Chief Justice, for the prestige it exudes, serves as the umbrella allowing others to benchmark their rewards. It will be unreasonable to ascribe this to the honourable judge himself, since he has just inherited the structure, but then such is the structure and the top dog comparison is a rather accurate reflection of the public pay structures in place. Consequently, we see that the Attorney General’s salary is benchmarked against that of the Chief Justice and the rest of the higher judiciary earns only a fraction less, say 10 per cent or so. The senators have demanded salaries equal to those of the judges. There are senior civil servants and their underlings who have their own sense of entitlement. There are even those who think that they deserve more, such as some in the Securities and Exchange Commission of Pakistan, because they are looking at bigger balance sheets. We are not even discussing here the share of those defending the terrain, which is a rather complex equation of real and imaginary variables.

Voila, we have a highly rewarded governing class, looking for their disproportionate share of the public purse. They are spinning the state machinery to collect the golden eggs but their appetite is so huge that the focus is more on the hen than the egg, and it feels that the machinery is trying to get all the eggs in one go. Bahria Town and Telecoms are the big birds that may be able to manage even if it stunts their growth; many of the smaller ones may just bleed to death, unable to pay the rent to the state, pushing millions out of work, leaving them scrambling for three square meals.

The expenses for the Supreme Court are only a miniscule part of the overall budget but the pattern here is emblematic of the consolidation of privileges across the statecraft. Salaries in some state-owned enterprises are even 100-200 per cent more than those of the judges or perhaps even more, with justifications that have never seen public scrutiny.

Expecting the honourable judges to put a restraining order on their salaries is expecting them to be super human. It is the parliament that has to take up this task and has to come up with effective legislation to put a cap on the fortune you can make on taxpayers’ money. In UK, the debate is to keep the maximum ratio at 20:1 though there is no formal cap. However, the government publishes a list of all those earning more than £150k per annum which is about ten times the minimum pay.

Pakistan is neither an advanced economy nor that equitable a society so a multiple of 20 or 25 is still far away in the future. However, I think there could be a consensus on a multiple between 40 and 50 times the minimum wage to be set as maximum pay on the public purse, including all benefits other than security. There should be a target to gradually reduce it to the 30s over a decade, which would also mean nudging the minimum wage up. The introduction of Management Professional grades (MPI/II/III) was a well thought out initiative in the last decade but could not satisfy the ever-growing sense of entitlement. Pakistanis are generally generous and forgiving of small excesses of the governing classes but they have reached a point of exasperation. The political class has been called into question. The taxation overdrive, especially when the government’s record on delivery of services is abysmally poor, serves little purpose other than the share of spoils amongst the governing group. It feels that the state is being run for the benefit of its overlords.

Plump paycheques