A significant rise in public sector wages will worsen the economy, a defiant statement by the Ministry of Finance said this week, even as surging inflation strengthens worker's call for a hike.

With expenditure on compensation - made up of salaries, pensions, gratuities and social security transfers - absorbing 66 percent of tax revenue between January-September 2013, further growth in wages will crowd out investment in infrastructure and social programmes, and generate worse economic outcomes, said the Ministry.

The statement was in reply to the Trades Union Congress's (TUC) call for “a significant upward adjustment of wages to cushion workers from the current economic hardship”, which was among the labour union's urgent demands in a stinging attack on the “failed neo-liberal” policies of government.

“This call for wage hikes is not in line with the same TUC's concern about the nature of economic policies and quality of economic management,” the Finance Ministry said. “Increasing the wage bill above sustainable levels will certainly result in sub- optimal outcomes, which the TUC is advising against,” it added.

Since the Single Spine Pay Policy (SSPP) was rolled- out in 2010, public sector salaries have risen substantially, adding an extra GH¢8 billion to what otherwise would have been the cost of compensation since 2010, the Ministry argued.

It also contended that the average pay in the government sector has exceeded levels in the private sector since the SSPP was introduced.

But as the policy - which was promoted as a fairer public sector wage system compared to its predecessor, the Ghana Universal Salary Structure - continues to devour a more-than-reasonable share of, tax revenue, the Ministry of Finance has proposed to freeze wages in 2014 to stabilise pay expenditure and manage a large budget deficit.

Unions, led by TUC, have vehemently rejected the government’s stance amid the rising cost of living, with consumer inflation increasing for five consecutive months since September last year. It stood at 13.8 percent in jaiiuary, the highest in almost four years.

 Seth Terkper, the Finance Minister, said on Wednesday he will be meeting with unions over pay issues this week.

Last year, the unions were given a 10 percent pay rise, but they will be demanding a bigger hike this year as the cost of living has jumped more rapidly, Kofi Asamoah, the TUC's Secretary-General, suggested in an interview with the B&FT last month.

“Even if the increase matches the projected inflation rate (9.5 percent year- end), that will simply restore workers' purchasing power. And we also have to consider that the actual inflation could be higher than the projected, in which case we wouldn't be able to come back and ask for a further increase. So the projected inflation is, not the only factor as there are other cost-of-living elements,” he said.