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.
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.
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.