The government is offering unions representing 1-million state employees inflation-busting pay increases at a time when the country needs to rein in spending to help keep its investment-grade credit rating.

Negotiations over wages for teachers, nurses and other state workers are testing the ability of the new Cabinet, led by President Cyril Ramaphosa, to walk a political tightrope with labour unions that supported his rise and keeping the country’s finances under control. Treasury wants the state to contain the public-sector wage bill, which has crowded out spending in other areas.

The government has offered increases of 7% for the most-junior employees for the year up to end-March and 6% for senior staff, including managers, a document seen by Bloomberg shows. Consumer prices rose 3.8% in March.

The unions had demanded a 12% increase — more than double the Reserve Bank’s forecast of 4.9% for average inflation this year — and lowered the request to 10% on May 4, according to an official familiar with the talks who declined to be identified.

"We have received an offer that is worth the consideration of our members," Sizwe Pamla, union federation Coosatu spokesperson said by phone. "We will allow our workers to engage comprehensively and will implement whatever mandate they give us. We can’t rule out or promise anything, it’s in the workers’ hands."

Looming election

Ramaphosa, himself a former labour-union leader, can’t afford to upset state workers before next year’s general election, where the ANC will seek to reverse recent electoral losses. Cosatu helped him win the ANC’s presidential race that paved the way for him to succeed Jacob Zuma.

Negotiations for the three-year wage deal resumed in January and were subjected to many delays because of the change of guard. The unions have until Friday to consider the offer made at a bargaining council where eight labour bodies are represented.

The Public Service Association (PSA), which has about 200,000 members and isn’t part of Cosatu, isn’t supporting the offer, deputy GM Tahir Maepa said, without giving details. "It’s worse than we received at the beginning. There’s no way we’ll accept."

Department of Public Service and Administration spokesperson Mava Scott said negotiations protocol prevented the government from commenting at this stage as it might jeopardise the talks.

Treasury wants to reduce the budget deficit to 3.6% of GDP in the year to end-March 2019 from 4.3% in 2017-18, it said in the February budget. Wages accounted for about 35% of total state spending in fiscal 2018, up from about 33% in 2008.