Finance Minister Tito Mboweni has begun to tackle the political hot potato of cutting the public sector wage bill, with the government eyeing reductions amounting R160.2 billion over the next three years.
Mboweni expects the public sector wage bill to reduce by R37.8 billion in 2020/21, R54.9 billion in 2021/22 and R67.5 billion in 2022/23.
In the 2020 budget review policy document, National Treasury said the medium-term reductions in the wage bill will target public servants in the national and provincial departments and state-owned enterprises (SOEs) that enjoy unfettered access to taxpayer-funded government bailouts.
Mboweni is beginning to make good on his medium-term budget policy statement promise in October 2019, when he said government has a credible plan to stabilise government spending, starting with finding budget savings of about R150 billion. Market watchers expected that the savings would come largely from cuts in the public sector wage bill.
Mboweni has faced pressure from the private sector, business lobby groups and credit rating agency Moody’s Investor Service, which is the only major rating agency that has not downgraded SA to sub-investment grade, to reduce the public sector wage bill as it makes up a large portion of government expenditure.
Since 2012/13, the bill has grown strongly without the requisite productivity of public servants, averaging 35.4% of the government’s total expenditure. This has forced the treasury to reprioritise spending in critical areas of service delivery such as health, policing and infrastructure investments to fund the ballooning wage bill.
Treasury said the proposed wage bill reduction of R160.2 billion will reduce government’s spend on compensating public servants by 1% over the medium term.
Although the cuts might create goodwill around government’s commitment to stabilising its finances, they won’t make a big dent in government debt or expenditure.
Gross national debt is expected to increase to 71.6% of GDP over the next three years and the budget deficit is expected to drop by a small margin to 5.7% over the same period from the current 6.8%.
Underscoring the bloated nature of the public sector wage bill is that 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, according to Treasury’s recent figures.
“Government recognises that public-service employees should be fairly remunerated, but is obligated to balance compensation demands with the broader needs of society as reflected in the budget,” Treasury said in its 2020 budget review document.
“Civil servants’ salaries have grown by about 40% in real terms over the past 12 years, without equivalent increases in productivity. Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery.”
Treasury didn’t give details on which government departments and SOEs are targeted for job cuts.
Instead, the government said talks about cutting the public sector wage bill with trade unions at the Public Service Co-ordinating Bargaining Council are still ongoing. To contain the growth in the compensation of public sector workers, government is eyeing several measures – mainly scaling up the early retirement of workers without penalties, adjusting salaries downwards and not offering salary increases from 2020/21.
Treasury is struggling to get buy-in from many government departments to support its drive to cut the public sector wage bill.
It said the take-up of the early retirement packages has been slower than anticipated, with the Department of Police being the only department to finalise implementation of the initiative during 2019/20. Other departments have submitted proposals, which are currently being processed.
The government will be on a collision course with public sector unions, which have been fiercely opposed to any job cuts.
‘Direct attack’ on collective bargaining
Cosatu has already caught wind of Mboweni’s unpopular plan, as the labour federation said it rejects the proposed cut in the wage bill. In a statement, Cosatu said the government has already begun the work of not offering public servants salary increases for the year 2020/2021 – a move it has described as a “direct attack on collective bargaining.”
“If the government attempts to smuggle this review in the budget speech, the Cosatu Central Executive Committee will regard it as a declaration of war and there will be [a] parting of ways with government going forward,” said Cosatu.
“This reckless destabilisation of the public service is not informed by the state’s delivery programme but is an ideologically driven programme aimed at pandering to the rating agencies. This does nothing for staff morale, motivation, and productivity.”
In a press briefing with journalists, Mboweni said he is confident that the government and trade unions will “find each other for the credibility of the fiscal stance”.
Mboweni also said he has political support from his cabinet colleagues to cut the public sector wage bill.