Contrary to recent research, it could be argued that there is nothing elite about SA’s understaffed and underpaid public sector workforce – in fact, they might be facing attack. Picture: SUNDAY TIMES
Contrary to recent research, it could be argued that there is nothing elite about SA’s understaffed and underpaid public sector workforce – in fact, they might be facing attack. Picture: SUNDAY TIMES

The ballooning public-sector wage bill has hit a crisis point, leading the Treasury to flatly refuse to allocate more money to public servants’ pay, despite a formal agreement with trade unions to increase expenditure by R20bn over the next three years. 

The issue is sure to be a hot political issue, with ministers already at odds over the consequences of the agreement, which commits government to spend R242.7bn over the next three years.

The increase exceeds the existing provision of R212.5bn budgeted for salary increases and other conditions of service over the medium-term expenditure framework period, adding R30bn to the bill.

The Treasury is not refusing to implement the increase, but has tossed the biggest hot potato in government back to departments, cryptically saying they need to fund shortfalls by “adjusting within their compensation baselines”.

“This means increasing efficiency, carefully managing overtime and performance incentives,” according to the medium-term budget policy statement (MTBPS) review documents.

Finance minister Tito Mboweni said in his maiden medium-term budget speech that SA had to choose to reduce the structural deficit, especially the consistently high growth in the real public-sector wage bill.

In an earlier briefing with reporters, Mboweni said a ‘‘sweet spot’’ for public-sector compensation, as a percentage of the government’s consolidated spending, was ‘‘below 30%’’, compared to the 35% it currently accounts for. 

If it were up to Mboweni, he would also want the cabinet to reduce its size to 25 ministers instead of an executive of about 70 people, and that includes deputy ministers.

The Treasury’s decision not to allocate further money reflects the dire financial position of the government and an underlying exasperation with the ever-increasing wage bill. The medium-term budget documents include a long and detailed appendix about the issue, which tries to isolate the main drivers of compensation spending.

Contrary to popular opinion, the increase is not significantly caused by an increase in the number of state employees. It has much more to do with a succession of above-inflation wage increases. The wage bill, the documents suggest, increases total compensation from R154bn in 2006-2007 to R480bn in the 2017-2018 financial year. Of that increase, R144bn was caused by simple inflation, and R44bn by an increase in the number of civil servants. Above-inflation increases amounted to the rest — R137bn.

Public-sector unions

The wage agreement reached in June with public-sector unions includes a cost-of-living adjustment that is linked to consumer price index (CPI) inflation, although for many employees it exceeds inflation, the Treasury claimed. It also includes an extension of the housing allowance to cover qualifying spouses, and what the policy document describes as “a commitment to standardising progression policies”.

This cryptic phrase points to one of the problems with private-sector wage increases: national and provincial government have different systems for ratcheting employees up salary notches.

The Treasury’s decision is going to put enormous pressure on expenditure in government departments, some of which have managed in the past to meet their budgets by diverting capital expenditure into the salary budget. Treasury officials acknowledge that this remains a risk and have asked the department of public service and administration to examine different options, which could include early retirement.

Ian Stuart, the acting head of Treasury’s budget office said: “Part of the story might be that you allow natural attrition and don’t fill these positions.” He also said the department of public service was considering options that are legally acceptable, including the possibility of proposing an incentive by removing early retirement penalties and incentives for voluntary early retirement.

However, no budget allocation has been made for early retirement, although Treasury officials have suggested other ways of meeting this cost. What those might be will be a subject of intense discussions with unions.

The medium-term budget documents note that, “Over the long term, government and trade unions need to agree on an approach that ensures fair remuneration and a sustainable wage bill.”