Godongwana pushes for a cut in public sector wage bill

Finance minister Enoch Godongwana has called for public sector wage restructuring as the government moves to reduce the risk to the improved fiscal outlook.

“We need some wage restructuring of some kind. What is in my head is to reduce the amount of money we allocate for the wage bill,” Godongwana said during a media briefing ahead of the budget speech in parliament.

By restructuring, Godongwana said it doesn’t necessarily mean reducing the headcount, but avoiding higher than inflation increases. He said these are modalities which will be discussed with public sector unions during a summit at the end of March.

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 claw back fiscal stability.

While trade union federation Cosatu, a key ANC alliance partner, has backed President Cyril Ramaphosa’s efforts to clean up the government, it is not on the same page about the push to slash the wage bill. 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.

With its popularity waning, the ANC could come under increasing pressure to appease unions ahead of the national polls in 2024.

According to the Budget Review, compensation spending will increase marginally, from R665.1bn in 2021/2022 to R702bn in 2024/2025, at an average annual rate of 1.8%. The government has allocated additional funding of R20.5bn in 2022/2023 to meet the cost implications of the 2021 public service wage agreement, Godongwana said in his budget speech.

“A public sector labour summit is scheduled to take place as from March 28 to 31.  This summit is an important opportunity for stakeholders to engage on building a sustainable public service and remuneration guidelines,” the minister said.

In budget documents, the Treasury highlights that the 2021 wage agreement awarded employees a non-pensionable cash gratuity. In the absence of  a new agreement, the same gratuity will be paid in 2022/2023, which is provided for in the 2022 budget.​

The Treasury also warns of job cuts if salary adjustments exceed compensation ceilings.

“As indicated in the 2020 budget, compensation baselines will grow at the rate of inflation from 2024/2025. Should collective bargaining result in salary adjustments that exceed compensation ceilings, reductions in headcount will be required. Treasury also warns that an adverse decision by the Constitutional Court in the case relating to the 2018 wage agreement could significantly increase compensation costs.”

The Treasury detailed the worrying increase of public sector wages over the years. Compensation spending for national and provincial government grew by 7.3% on average for the period 2014/2015 to 2019/2020, compared with 6.8% average growth in non-interest expenditure.

Treasury said over the medium term, restoring  fiscal  sustainability requires continued restraint in expenditure growth and reforms to raise economic growth. It said the fiscal outlook is subject to significant risks. These include weakening of global or domestic economic growth, rising global borrowing costs, the possibility  of  higher  public service  wage  costs,  and  the  poor financial  condition  of  several  major  state‐owned  companies.

Broadly, over the medium term the bulk of the spending is allocated to learning and culture (R1.3-trillion), social development (R1-trillion) and debt service costs (R1-trillion). 

Relative to the 2021 budget, allocations to provincial and local government will increase to assist with urgent spending pressures. Direct provincial allocations will increase by R74.1bn over the medium term, while local government allocations will be increased by a total of R30.7bn over the period.

Over the medium term, after budgeting for debt service costs, the contingency reserve and provisional allocations, 48.8% of nationally raised funds are allocated to national government, 41.4% to provinces and 9.8% to local government. 

Total consolidated government spending will amount to R6.62-trillion over the next three years, and the social wage will take up 59.4% of total non-interest spending over this period.

phakathib@businesslive.co.za