Mboweni finally moves to slash government wage bill

To bring SA’s debt and budget deficit under control.
Zero-based budgeting on the way – Finance Minister Tito Mboweni. Image: GCIS

Finance Minister Tito Mboweni on Wednesday announced main budget non‐interest spending cuts totalling R300 billion for the period between 2021 and 2024, in his boldest move yet to slash government spending – especially around the state’s bloated wage bill.

Mboweni and National Treasury finally bit the bullet revealing initial details of the plans during the tabling of the 2020 Medium-Term Budget Policy Statement (MTBPS) in Parliament in Cape Town. The move is likely to face stiff opposition from public sector unions, which have already taken government to the labour court regarding its decision to freeze salaries this year.

Read: Mboweni: Close the hippo’s mouth or face Argentina-like debt crisis

The spending cuts almost equate to the government’s latest expected revenue shortfall of just under R313 billion for this year, due to the Covid-19 economic fallout. Mboweni revealed an expected shortfall of R304 billion during the supplementary or emergency budget in June, however this has deteriorated by a further R9 billion.

The 2020 MTBPS proposes the spending cuts as one of the main steps to reduce the fiscal deficit and stabilise SA’s debt‐to‐GDP.

“Relative to the 2020 Budget, main budget non‐interest spending [excluding technical adjustments] is reduced by R60 billion in 2021/22, R90 billion in 2022/23 and R150 billion in 2023/24, with constrained spending growth in the following two years,” a MTBPS presentation notes.

“The largest share of reductions falls on compensation,” it adds.

However, an exact updated figure on how much National Treasury wants to slash off the state’s wage bill is not disclosed. In the February main budget, Mboweni mentioned a cut in the government wage bill of some R160 billion over three years.

Commenting on the so-called compensation adjustments during his medium-term budget speech on Wednesday, Mboweni called for “a new consensus on public-sector employee compensation” as part of the country’s post-pandemic rehabilitation.

Read: Mboweni manages to maintain budget deficit forecast at 15.7% of GDP

“Our compatriots in the private sector have made sacrifices and even negotiated salary cuts to keep businesses afloat,” noted the finance minister.

“Over the past five years, public sector employee compensation grew by 7.2% a year on average – well above inflation. Over the next five years, it will need to grow much, much slower,” he said.

“Consideration should be given to the proposal for across-the-board compensation pay reductions to management-level positions, across national, provincial and municipal governments, state-owned entities all other senior public representatives,” Mboweni added.

To achieve the planned wage bill reductions, government now proposes growth in the public‐service wage bill of 1.8% in the current year and average annual growth of 0.8% over the 2021 MTEF (medium-term expenditure framework) period.

“Government has not implemented the third year of the 2018 wage agreement. Notwithstanding that the matter is before the labour court, government is actively engaging with labour unions to find a solution to a more sustainable cost of employment,” the MTBPS notes.

“Furthermore, the budget guidelines propose a wage freeze for the next three years….

“Additional options to be explored include harmonising the allowances and benefits available to public servants, reconsidering pay-progression rules and reviewing occupation‐specific dispensations,” it adds.

According to the MTBPS, implementation risks for expenditure reductions, particularly around the wage bill, is one of the major short‐ to medium‐term risks to the fiscal framework.

“Both the upcoming decision on the final year of the current wage agreement and the upcoming wage talks pose significant risks to the expenditure ceiling,” it states.

Other risks include:

  • Uncertainty around the speed of the economic recovery – including the medium-term effects of the lockdown, both domestically and internationally (globally, several developed economies have returned to strict lockdowns).
  • Additional spending pressures from state‐owned companies. Several companies, including South African Airways, are insolvent and have insufficient funds to cover operational expenses.

At least one public sector union was not interested in a wage freeze. Mugwena Maluleke, general secretary of teachers’ union Sadtu, told Reuters that freezing civil servants’ pay was “not implementable”. “This is a neo-liberal onslaught on the workers … who are basically on a daily basis dealing with this virus in order to serve our people.”

Read: Government bails out SAA again

Meanwhile, the 2020 MTBPS highlights presentation document also notes that although other non‐interest spending items are also reduced, funding for buildings and other fixed structures, provincial and local capital grants, and the Infrastructure Fund is protected.

“To assist with the consolidation, government has projected tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25,” it states, adding that “the aim is to reach a main budget primary surplus by 2025/26”.

The presentation notes that this target is expected to result in debt stabilising at 95.3% of GDP in the same year (2025/26).

Consolidated government spending is expected to total R6.21 trillion over the MTEF period – increasing from R2.04 trillion in 2020/21 to R2.14 trillion in 2023/24, at an average annual growth rate of 1.6%.

Listen/Read: Moneyweb editor Ryk van Niekerk interviews Sars Commissioner Edward Kieswetter on the MTBPS 

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“To assist with the consolidation, government has projected tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25,” it adds, noting that “the aim is to reach a main budget primary surplus by 2025/26”.

Good luck with a decimated economy and non-existant fiscus.

Hmmm…they could be right.

Caveat: ONLY IF local inflation goes the way of our northern neighbor, ZimGuptaWe…then R15bn in four/five years’ time, would be like R1bn in today’s terms 😉

i.e. hardly a difference (in ‘current value’)

Maybe the ANC is planning on hyper-inflation, who knows?

Somewhere along the line he will get his taxes. Either directly or via indirect taxes/levies

The corrupt ANC led Government is the cause of SA’s woes

How on earth can they be so arrogant to think that they have the solution?

Whoever believes this lives in cuckoo land.. We who do not vote for them (the taxpayer’s) money is yet again squandered on the SAA.. What now Ghordan? Empty promises, proving yet again that you and the leader are mere puppets

An IMf bailout with conditions might save the day (At least the IMF will insist on a wage bill cut, hence many are against it)

They’re trying to kick life into a dead horse with our money

I wish Minister Mboweni all the success in navigating SA out of its mess, courtesy of the other corrupt, thieving MEC’s and Inc. that he has to mingle with

This has about as much chance of happening as SAA turning a profit.

And i thought the easter bunny was real

Hahahaaaa.

He is cutting the wage bill in areas his boss promised to create 200000 jobs????

Very sensible.

Collecting social grants will be reclassified as a job ,then both aims are met !!

Oi, I would also be smiling like the Minister! I know his twitter cooking stunt was a joke.

Wage Bill Cut???? NOT! till Jesus comes back to save the ANC.
The wool will be drawn over the taxpayers eyes again, Tito knows, I know it…. watch out for the future

The unionised workers have had it all their own way for years with above-inflation salary increases, totally secure jobs which have resulted in them being paid well above private sector wages. The unions now HAVE to realise that THERE.IS.NO.MORE.MONEY. They cannot continue to ride the gravy train any longer. They can shout, scream and kick but there are millions of people starving in SA, while they live in fancy houses and drive expensive cars. Remember Marie Antoinette…..

CR has to do a Maggie Thatcher in order to achieve this.

I don’t see this happening; because of ANCs alliance with Unions and Communist party.

In reality, the Fin Min will only cut the Govt wage bill “from 2024”.

And when 2024 arrives, the (already dented) can will be kicked further down the road….with a new proposal.

Mboweni merely HOPES for a salary freeze; it’s up to he public administration and labour ministers to get the unions to agree….
Hence Mboweni talks in his speech of “harmonising” the gravy train perks – LOL!

Tax proceeds will get a huge boost when the taxi industry – who have conveniently organised themselves outside the country’s laws – start to pay tax. The day the taxi industry starts to pay tax will be the day I believe the Government is taking things seriously.

A new plan! I have seen this movie before —- it ends with no implementation and another round of “lets make another new plan”.

Next budget speech should be on April’s fools day.

hahahahahaha….Tito will be slashed before salaries are slashed

To a corrupt party with a plan, every budget speech is a result.

We are tired of their repeated failures and corruption.

Freezing wages for a while is not ‘slashing’ the public sector wage bill. If you shed 25% of the employees, then possibly.

Tito Mboweni is turning out to be another Pravin Gordhan. Useless.

Aye Eric; worse than useless as they cannot resist fiddling with things they know zero about like airlines and arithmetic. If they weren’t so arrogant (as well as greedy) they would have left the systems in place with competent people, just supplementing as needed, then they, the ANC apparatchiks, could have sat back and watch the economy thrive and still done very well, personally, out of it.

But no, they have to believe that they and their pals can actually run things effectively, as well as steal. That is when the trouble started!

The approach is wrong. Get rid of people, that are not needed and are unproductive. But most importantly, get rid of those implicated in any fraud or irregular expenditure. Leave the rest.

People should know by now, the anc (and yes Tito is part of the anc) saying they are going to do something, and actually doing something are two very different things. Well I guess that goes for politicians in general, but the cadres have elevated this to an art form.

End of comments.

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