Finance minister Tito Mboweni ahead of the 2019 budget speech. Picture: RUVAN BOSHOFF
Finance minister Tito Mboweni ahead of the 2019 budget speech. Picture: RUVAN BOSHOFF

The public-sector wage bill will be reduced by R37bn over the next three years through early retirements and natural attrition, with no additional money allocated for salaries, according to the 2019 budget.

The wage bill accounts for more than 35% of consolidated public spending and has been a major driver for the fiscal deficit, with spending reductions typically falling on goods and services and capital investment.

Reducing the public wage bill is key to rebalancing the budget and shifting the composition of expenditure away from consumption towards investment. This has also been a key factor raised by ratings agencies. After 2018’s public-service wage agreement increased wages above inflation, the medium-term budget policy statement (MTBPS) projected a R30bn shortfall, but according to the 2019 budget, employee numbers are declining, at a sufficient rate to absorb wage agreement pressures.

This is due to natural attrition, which acting head of the Treasury’s budget office Ian Stuart said had happened more rapidly than expected. 

In his medium-term budget in October, finance minister Tito Mboweni said national and provincial departments would have to “absorb … costs within their compensation baselines”.

Mboweni, in his maiden budget speech on Wednesday, said the public wage bill is “unsustainable” and the first step in reducing it is to allow public servants who want to retire early to do so. 

“The older public servants who wish to retire should be facilitated to do so graciously,” Mboweni said at a media briefing ahead of his speech. “[We will] make sure that people who retire early do not lose out on pension benefits.” The government will also scale-up early retirement without penalties. 

However, Mboweni said the challenge might very well not be the amount of public servants, but rather their pay levels. The Treasury has estimated that early retirement could cost about R16bn over the next two years, of which a portion would be funded from the contingency reserve, and the balance by the Government Employees Pension Fund.

The fund’s contribution will be repaid by the state over a longer period. Funding will also be provided for associated once-off penalties and other retirement-related costs.

In December there were 126,710 public-service employees between the ages of 55 and 59. Assuming that 30,000 employees take the offer of early retirement, an estimated R20.3bn would be saved over the 2019 medium-term expenditure framework period.

National departments will also see a permanent 50% saving attributed to early retirement cases. Stuart said this means that for every two higher-level employees who left, one lower ranking level employee would be hired. If these interventions are successful there could be an increase in expenditure in the medium-term, he said.

Later this week, public service and administration minister Ayanda Dlodlo will outline the details for the early retirement framework.

Bonus payments

In another effort to cut costs, the government will also look at phasing out performance bonus payments, a move that will not go down well with trade unions.

According to the budget, in recent years the government has paid out R2bn a year in performance bonuses.

Active management of overtime and progression payments are also under consideration.

Helping with the reduction of the public wage bill is the number of public servants having declined. On average, there were about 16,000 less employees in 2018 compared to 2015.

New employees tend to be younger and lower ranked than those who are leaving the public service. While this might help reduce the country’s ballooning public wage bill, it also means that more experienced, senior employees are leaving with skills and institutional knowledge, which could have an adverse effect on service delivery.

However, Mboweni said there could be some people who would be “tapped on the shoulder” and asked not to leave or take early retirement.