EDITORIAL: Public sector wage offer is hard for employees to refuse

At risk of speaking too soon, it seems the public sector wage negotiations are a done deal. 

The government has made a generous offer: every public servant, excluding those in management, will receive an additional R1,000 cash gratuity in their pocket after tax. This will cost the government about R18bn in the 2021/2022 year. Those who qualify (which is most people) will also get a 1.5% increase on their baseline pay, the so-called public service system of pay progression.

It is an offer employees will find hard to refuse. Most people would take it; journalists at Business Day certainly would.

Public servants also have another incentive to spur them on. They were offered a similar gratuity in December 2020 as compensation for the government reneging on the third leg of their standing wage agreement. Instead, unions took their chances and went to court, where they lost. The gratuity offer then fell away.

The point of offering the gratuity rather than a cost-of-living increase is to give public servants some compensation without adding to the baseline for next year’s salary. But whether that is actually achieved we will only know after next year’s salary negotiations. The draft agreement says the gratuity can end when a new wage agreement is in place for the 2022/2023 year.

The first problem with this is that wage settlements always lag behind the due date for settlement, so the Treasury will definitely be in for a couple of billion rand more than already estimated. The second problem is what happens when the agreement for the next year is negotiated. Unions will be determined to have the R1,000 — or a good part of it — factored into the baseline. If the gratuity goes on for long enough, it will be impossible to take away.

So apart from this difficulty, which could still be addressed in the final agreement, the other question is whether the latest offer is affordable?

The offer is against the recommendations of the Treasury, which wanted the state to offer a 1.5% increase and no more. This increase is reflected in budget projections for the next three years. The Treasury has made it clear that the additional R18bn will have to be found within the existing fiscal envelope. That means other line items in government departments and agencies will have to be cut.

The government has already committed itself to big — the biggest ever — budget cuts over the next three years as it seeks to stabilise public finances, arrest the debt-to-GDP trajectory and cut the budget deficit. These are ambitious: economists across the board and ratings agencies expressed doubt that they were achievable.

Thankfully, revenue inflows have been quite a lot stronger than was anticipated and the mini-commodity boom has endured. This will make the targets more achievable and it might even mean there is some extra money available to plug this hole.

That said, there are plenty of other holes that have arisen outside of the existing budget framework that the government has already committed to filling. SAA is going to need its additional R3.5bn to make the deal with its new equity partner fly. Finance minister Tito Mboweni has not quite agreed to the SAA money but will inevitably have to do so. Also outside the fiscal framework and already promised is another R6bn for the National Student Financial Aid Scheme, which was hastily made available after student protests in March. Some of this was to be found in the budget for higher education, but it is unlikely the full amount was covered.

All this will have to be dealt with in the lead-up to the medium-term budget policy statement. While trade-offs between departments and priorities must always be made, as SA goes further down the path of fiscal consolidation it gets more difficult — R18bn is a substantial amount to find from trimming programmes. Investment spending inevitably suffers.