Talks with labour hinder pace of cutting public sector wage bill

The expected R12bn savings for the fiscus per year until 2022 ‘have been reversed’.
Image: Brett Eloff, Bloomberg News

Despite the tough talk by President Cyril Ramaphosa and his cabinet colleagues about drastically slashing the bloated public sector wage bill to reduce government expenditure, there is still little progress to show for this endeavour.

Finance Minister Tito Mboweni announced during his February 2019 budget speech that the government would take additional steps to manage growth in the compensation of public sector workers over the medium term through several measures – mainly by scaling up the early retirement of workers without penalties.

Read: The Medium-Term Budget Policy Statement 2019

Mini budget in a nutshell

This effort alone was expected to generate a saving of R12 billion per year for the fiscus from 2020 until 2022. However, according to the 2019 Medium-Term Budget Policy Statement, the expected savings on compensation announced by Mboweni “have been reversed” due to impending negotiations between government and labour.

During a press briefing with journalists, Dondo Mogajane, National Treasury’s director general, said the R12 billion was a forecast, which could be revised down or reversed when the government began with restructuring the wage bill.

It appears that negotiations with labour are fraught and labour is holding court over the process – delaying the government’s plan to reduce the public sector wage bill.

Read: The good and bad about MTBPS that Moody’s will watch

National Treasury downgrades 2019 growth forecast

Government’s wage bill currently accounts for 46% of the gross tax revenue in 2019/20 of R1.36 trillion, which is “primarily because of above-inflation increases in average remuneration over the past decade”.

Underscoring the bloated public sector wage bill is that the National Treasury said the average annual wage growth per worker in the private sector was 2.1% in the first half of 2019, compared to 10.4% in the public sector.

The compensation of workers has been revised to R630.7 billion, which is expected to rise annually by an average of 6.3% from 2019 until 2023.

In the 2019 Medium-Term Budget Policy Statement, which gives an update of the government’s economic growth target and debt level as well as estimates for the budget deficit over the next three years, the Treasury said there are a number of measures it is considering to reduce the wage bill.

Options to be considered include “pegging cost-of-living adjustments at or below inflation, halting automatic pay progression and reviewing occupation-specific dispensations for wages”.

Earlier in 2019, the government has decided to scale up early retirement of workers without penalties. Where feasible, older employees will be allowed to retire early, with younger employees taking their place.

However, before it can embark on these initiatives, Treasury said the government has to discuss these matters with labour – and progress will be announced in the 2020 budget.

Government’s new public sector wage negotiations begin next year. Treasury has issued a sound warning that another wage agreement that is above consumer price index inflation – as occurred in the previous three rounds of wage negotiations – would put additional pressure on the public finances.

“It would continue the trend of compensation crowding out other areas of spending, widen the structural deficit and limit government’s ability to respond to any new fiscal pressures and risks,” Treasury said.

The wage bill has been a major driver of the budget deficit. The public sector wage bill and the on-going financial support of state-owned entities is expected to widen the budget deficit to an average of 6.2% over the next three years.

Treasury has conducted a review and analysis of its spending on public-sector wages. The review showed that 29 000 public servants, plus members of the national executive, members of Parliament and members of the provincial executive, each earned more than R1 million last year.

After adjusting for inflation, this is more than double the number of civil servants earning more than R1 million in 2006/07.

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As the Unions control the economy and thus the government, ABSOLUTELY NOTHING WILL HAPPEN (except further pay increases for the public sector and the SOEs).
The ANC should stop BSing the citizens of S.A. at voting time. The names of the Unions should appear on the ballot papers, not the ANC.

Standby for another tranche of taxpayers exiting the tax base and closing down their businesses. The ANC is simply incapable of running a country.No skills, no competence, no training, no ethics.

If one union member is dismissed the rabble will kick over rubbish bins, burn and loot and kill foreign blacks.

A really sophisticated understanding lot.

Only one way to try and stay alive.

INVEST EVERYTHING YOU HAVE OFFSHORE IN FOREIGN CURRENCY.

This lot will NEVER get it right.

100% correct..
This Government is pathetic, have no balls and clearly do what the unions instruct..
But hey, note all prominent Govt. members, as well as our President were ex Union Chiefs….

Get your cash out of SA…

Zimbo, here we come….. viva SA

There are so many ways to reduce labour costs without hurting employees

There is a big difference between needs and wants. Only status NEEDs even an R800 000 car as a perk. That’s really a want.

A need might be a R200 000 Toyota made in South Africa.

Cut the frills and perks. Then the head count. Start at the top – too many fat cats. Cutting door openers and low level staff does nothing for the overall costs

Once you accept the indisputable fact that the ANC has no clue about running a large and fairly complex economy like ours the circus that is economic policy becomes clear. The Eskom issue will destroy any chance of economic growth in the coming years with more ridiculous rates hike and higher lending costs as overseas lenders require higher interest rates for the increased risk of investing in our debt. For me the tragedy is the monster who masterminded this disaster, Jacob Zuma, remains a free man.

You credit – maybe it should be debit – Jacob with too much “mind”.
The ANC is collectively responsible for this whole mess. Jacob was only the face of the ANC at the time, the drive comes from 80 or so members of the NEC, who are collectively responsible for all the shenanigans.

In essence, government workers want second world payment for third world productivity, especially if you look at their results.

The more power the unions have, the less power the consumer has. Labour laws shift power from consumers to union members. Unionised workers in South Africa have more power than workers anywhere else. This implies that the South African consumer has the worst deal in the world. The consumer suffers under load-shedding of unaffordable electricity, sewage in the streets and in the river systems, militant and disruptive strikes and poor service delivery.

South Africa is a haven for unionised workers and a hellhole for the consumer.

And that’s why we have world record unemployment.

This thinking clearly indicates how clueless government is. They are going to treat SOE’s like businesses going forward and will be lending them money to be repaid with interest, not just giving them money going forward. If the SOE’s currently have to borrow money from govt just to repay other creditors, how do they think the SOE’s are ever going to pay government back, with interest. The mind absolutely boggles !

The government just does not understand the law of unintended consequences. Their amnesty allowing govt employees to retire early without penalties is merely causing yet another brain drain of experienced people. This will cause yet more inexperienced people to be promoted prematurely to positions for which they are not qualified. There is a serious loss of very qualified educators due to this initiative which will hollow out the already abysmal education system even more.

The anc are blindly following the same plan Castro forced in Cuba, the only difference being that the anc lacks a benevolent donor of bags of cash Castro got from Russia and latterly Venezuela for the sale of his people to the marxist leninist cause which is now defunct.

The anc will not be able to fund their version of Castro’s dream, and when “their people” revolt they will not, like their hero Castro did, be able to murder “their people” with impunity.

Ramaphoza best understand the world has changed and his planned anc communist dream and elitist tyranny will be stopped in tracks, very shortly!

“…Treasury said the government has to discuss these matters with labour”. This is the core of the problem. The ANC is beholden to these 2.7 million public sector employees to stay in power.
“No issue can be negotiated unless you first have the clout to compel negotiation” – Saul Alinsky

The fat cat union bosses are directly responsible for the unemployment.

Like politicians they have sown hatred of entrepreneurs amongst their members.

Question is when are we going to be ruled by the IMF. Should be an improvement on the current ANC government. But it will probably cause some pain, especially to the pride of the ruling elite. No pandering to trade unions.

The ANC will rather go the Zimbabwe route. They will never let the IMF in before we hit level Zim.

The state that we are in (unsustainable debt and recession) are the cumulative effects of ANC corruption and no political will to do anything about it.

End of comments.

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