Government plans to slash public servant salaries in 2020
Cuts of R160.2bn over next three years expected to help achieve fiscal consolidation
The government has pinned its hopes for fiscal consolidation on a bid to slash public servant salaries in 2020, a plan that has not yet been negotiated with trade unions.
Trade union federation Cosatu, which met government in the Public Sector Bargaining Chamber on the eve of the budget on Tuesday, has already responded with fury to the plan, calling it a “declaration of war”.
The cuts of R160.2bn to the public sector wage bill over the next three years envisage an immediate re-opening of the three-year wage agreement currently in force and a settlement of the prevailing consumer price index (CPI) minus 3% for 2020. This is a substantial reduction on what workers would have received on April 1 2020 which would, for most employees, have included a cost of living adjustment of CPI plus 0.5%, as well as notch increases of at least 1%.
The wage bill, which absorbs more than 35% of government spending, has been a major driver of rising expenditure, crowding out spending on goods and services and capital investment, which is important for economic growth. The budget review notes that civil servants salaries have grown by around 40% in real terms over the past 12 years, without equivalent increases in productivity.
Despite Cosatu’s pronouncements, Mboweni, speaking ahead of his budget speech, said he was confident that the government and unions would find each other.
“There will be agreements and disagreements ... But for the credibility of our fiscal stance, that R160bn has to be found for all our sakes. There is no point in being victorious here or there, trying to keep your cents but lose the pound,” Mboweni said.
A salary freeze has been put in place for all public representatives including cabinet ministers and MPs.
According to the Treasury’s proposal, deeper cuts in the first year to well below CPI would enable increases over the next two years to keep pace with inflation. A nominal increase of 1.5% in 2020 would allow for 4.5% and 4.4% over the next two years.
Catherine Mcleod, head of macro economic policy at the Treasury, said: “If you act now, you are able to manage the costs later. Every rand you save this year is a rand you don’t have to save next year,” she said.
This will involve a cut of R37.8bn in 2020/21 and further cuts in 2021/22 and 2022/23 of R54.9bn and R67.5bn respectively.
According to the budget review, the proposed reductions would see consolidated compensation spending contract by 1% in real terms over the medium term. It would also equate to a one percentage point difference in the budget deficit, head of the budget office Ian Stuart said in a briefing to reporters.
It said the target could be achieved through a combination of modifications to cost-of-living adjustments, pay progression and other benefits.
Last year, the government said it would reduce the public wage bill through early retirements and natural attrition, however this did not pan out as expected with little interest shown by employees.