South Africa may have to increase taxes, borrow more and fire workers if the government is forced to implement a civil-servant pay increase that was part of a 2018 agreement.
The Constitutional Court has yet to rule on an application to overturn a Labour Appeals Court decision that allowed the government to renege on a pay increase for the final year of the three-year agreement.
A decision in favour of the labour unions will have a significant impact on the fiscal framework, according to the medium-term budget policy statement released on Thursday. The Treasury has previously estimated it could cost the state about R37 billion.
The government would then have to consider “additional revenue measures, increased borrowing and active steps to reduce the size of the public service,” it said.
The pay freeze was a critical component of former Finance Minister Tito Mboweni’s plans to cut government spending, a goal his successor Enoch Godongwana is sticking to. The state’s salary bill accounts for almost a third of its consolidated expenditure.
The government had to find R20.5 billion this year for state workers after it reached a wage deal with unions that included a once-off non-pensionable cash payment of R1 000 per person, an amount that was not budgeted for in February.
The state employed 1.34 million people in the 2020-21 fiscal year, up 0.7% from a year earlier.