The South African government is faced with a dilemma: public servant wages are the fastest-growing expenditure item in its budget, but with the unemployment rate at over 29%, retrenchments and salary cuts are not in favour.
In the first half of 2019 the average annual wage per civil servant increased by 10.4%, compared with 2.1% in the private sector. On average their salaries have continued to increase above the inflation rate over the past decade.
As indicated in the graph below, remuneration has widened about 40% in real terms over the past decade.
Public service versus rest-of-the-economy remuneration
The combination of lower revenue and increased spending will widen the budget deficit to an average of 6.2% over the next three years.
Government’s income compared with its spending has not resulted in long-term growth, and increasingly undermines confidence, pushes up interest rates and reduces the space for new priorities.
In October last year, the Medium-Term Budget Policy Statement (MTBPS) noted that the South African economy needed R150 billion to achieve its fiscal target over the medium term.
A bleaker fiscal outlook
However, based on the International Monetary Fund (IMF’s) statement at the end of January, SA faces a “somewhat bleaker fiscal outlook” than the one presented in the MTBPS.
In its recommendations, the IMF noted that government plans to decrease the public sector wage bill.
“To this end, the authorities plan to stabilise and improve the fiscal position through several measures, including reducing the public sector wage bill and additional revenue measures,” the statement reads.
It adds that the government is “committed to prudent fiscal policy and fiscal sustainability, while creating the required space for large infrastructural projects”.
The fiscal deficit is projected to increase to an average of 6.2 % over the next three years from 4.3% in 2018.
This recommendation leaves an assumption that in the upcoming 2020 budget speech, Minister of Finance Tito Mboweni may have a ‘surprise’ on how the government plans to ‘cut down’ on this vexing expenditure.
Because what is certain is that South Africa needs the public wage bill to align with productivity in the country. However, labour analysts are not in favour of job cuts.
The alternative, Mr Minister
Mining and labour analyst Mamokgethi Molopyane suggests that government put a cap on public servants’ wages for three to five years.
“The government is really in a tough place, as it cannot continue to increase government employee wages year on year at the rate it is doing now,” she says.
The alternative is that it comes to an agreement with employees for the next couple of years, she adds, acknowledging that this is a tough one for government as it is in an alliance with Cosatu.
“But eventually someone in government needs to be the tough guy and cap the wage bill,” says Molopyane.
“If it is not capped, the unions run the risk of the government saying we are going to stop extended public works [programmes] and we are going to freeze some of the positions in the public sector and we are going to reduce the number of people employed – which is an even worse outcome than putting a cap on the wage bill.”
Another labour analyst, Terry Bell, says the best place to start to cut public wages is in the cabinet. “[South Africa] still has the largest cabinet that you can find anywhere … it is huge. So if they want to set an example, perhaps that is where they should start.”
Although President Cyril Ramaphosa has reduced the number of ministers by eight, South Africa’s executive remains the largest.
India has a population of about 1.4 billion, and its cabinet is smaller than that of SA, despite our considerably smaller population of over 56 million.
SA has the largest cabinet in the world
Downsizing the cabinet would result in substantial cost savings. It consists of 64 members – including the president, deputy president, ministers and deputy ministers.
And according to Africa Check, deputy ministers earn more than R1.9 million a year, ministers R2.4 million, and the president and his deputy earn over R2.8 million. These figures excludes benefits such as free housing, travel and domestic staff.
Bell adds that once government has downsized the cabinet, it can focus on Eskom, but in the same breath, he says workers should not be the ones to suffer.
“We have over-staffing in places such as Eskom, but who is responsible for that?
“I think labour unions are right when they ask ‘Why is it that the workers always have to pay for the incompetence and mismanagement caused by corruption?’”
Bell says cutting the public sector wage bill is not an option because this would increase resentment and cause greater instability in the country.
“What is needed is to look at trade and income policies right across the board, and at what the IMF and World Bank say we should do,” he says.
Roelof Botha, economic advisor at Optimum Investment Group, says although it is debatable, the bulk of government employees add no value to the GDP in the country.
“There are too many people in this country who go to work in the morning and go home in the evening and have not added a single cent of value to the economy,” Botha says.
How Mboweni plans to reduce the wage bill will remain a mystery until February 26, when he delivers his budget speech. But one thing is certain: the speech will be scrutinised – not least of all because the IMF suggested government put forward recommendations to achieve both fiscal consolidation and reprioritisation of expenditure, to ensure the stabilisation of debt by 2025/26.
It does however acknowledge in its statement that “implementation of the proposed wage bill measures and economic reforms require politically difficult decisions”.
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