Wage bill is a mess, Tito Mboweni says in budget statement
Successfully slashing the public servants' salary bill is vital for the country to stave off a ratings downgrade by Moody’s Investors Service
Finance minister Tito Mboweni wants action to be taken against some former cabinet members responsible for the unsustainable public service wage bill, which threatens to widen the budget deficit and lead to higher levels of government debt.
The public servants’ salary bill is one of the biggest threats to SA’s finances, and successful efforts in slashing it are vital for the country to stave off a ratings downgrade from Moody’s Investors Service, the only agency still ranking government debt on investment grade.
In a media briefing ahead of delivering the medium-term budget policy statement (MTBPS) in parliament on Wednesday, Mboweni specifically cited former ministers of public service and administration Faith Muthambi and Richard Baloyi, who both served under Jacob Zuma.
“Let’s call a spade a spade ... they signed agreements outside their mandate. They got us into this mess,” Mboweni said.
Mboweni said for every R100 the state collected in tax revenue, R46 was spent on paying the salaries of public servants.
Growth in the government’s compensation bill will need to be reduced and additional revenue measures may be needed. The final shape of the adjustment will be announced around the 2020 budget, the minister said. Other benefits, including cellphone allowances, which amount to R5bn a year, and business-class travel are set to be cut, Mboweni said.
The wage bill, which is almost R600bn, represents about 35% of projected annual spending of about R1.67-trillion. According to the MTBPS, above-inflation remuneration increases account for the largest proportion of this spending. After adjusting for inflation, average remuneration in the public service rose 66% between 2006/2007 and 2018/2019. Average remuneration in the public sector is higher than average remuneration in the rest of the economy.
The MTBPS highlights that rapid growth in compensation spending has been driven by real increases in wages and benefits rather than higher employment levels. In addition, the rate of growth of compensation has diverged between the public and private sectors over the past eight years, as average remuneration growth has moderated in the private sector.
Mboweni emphasised that slashing the wage bill did not necessarily mean cutting the number of “warm bodies”. It’s about dealing with the level of compensation, he said. Discussions with labour would be finalised by the time the February budget was tabled.
“I am certain that we will find one another, ... prudent and decisive action will be required. In a difficult situation we need to tighten our belts,” Mboweni said.
Cosatu affiliate the National Education, Health and Allied Workers Union (Nehawu), which represents more than 235,000 public servants, has already branded potential job cuts a “neoliberal” agenda.
The union is a key backer of President Cyril Ramaphosa’s efforts to clean up the government, but is not on the same page about potential job cuts. The union previously said it condemned the government’s fixation on singling out the public sector wage bill and its “deafening silence” regarding wastage, corruption and fruitless expenditure incurred through the huge outsourcing of public service functions.
In his speech in the National Assembly, Mboweni said the government had identified spending reductions of R21bn in 2020/2021 and R29bn in 2021/2022, mostly in the area of goods and services, and transfers.
In addition, noninterest spending in the outer year of the framework is constrained in line with consumer price inflation. However, Mboweni said that if the state is to achieve its cost-cutting targets, it will need to find additional measures in excess of R150bn over the next three years, or about R50bn a year.
“How will we do this? We will need to deal with the challenges of the wage bill, state‐owned companies, executive remuneration and benefits and fiscal leakages,” Mboweni said.
He highlighted a detailed analysis by the Treasury of spending on public‐sector wages. It shows that 29,000 public servants, plus members of the national executive, MPs and members of the provincial executive, each earned more than R1m in 2018. After adjusting for inflation, this is more than double the number of public servants earning more than R1m in 2006/2007.
The average wage increase across the government was 6.8% in 2018/2019, or 2.2% above inflation. After adjusting for inflation, the average government wage has risen by 66% in the last 10 years.
“We look forward to robust discussions in the relevant bargaining structures and with other stakeholders to achieve a sustainable arrangement,” Mboweni said.
According to the MTBPS, in 2020/2021, negotiations will begin for a new public-service wage agreement. Another agreement that is above consumer price index inflation, as occurred in the previous three rounds of wage negotiations, would put additional pressure on the public finances.
It would continue the trend of compensation crowding out other areas of spending, widen the structural deficit and limit government’s ability to respond to any new fiscal pressures and risks, the Treasury said.
Correction: October 30 2019
An earlier version of this article stated that 29,000 public servants earned up to R1m a month in 2018. The remuneration was for the whole year.