There is simmering unsettledness within the tripartite alliance, thanks to Finance Minister Tito Mboweni’s announcement of public spending cuts in his budget and President Cyril Ramaphosa’s comments about trimming public sector wage bill.
Prior to the 2020 budget there had been little honest reflection within the (ANC, Cosatu and and SACP) alliance about the rising cost of civil servant remuneration relative to government spending and the declining tax base.
Mboweni’s delivery may have softened the incivility. We saw him tread carefully by couching his statements in the practicality of the struggling economy. But the way the Budget Review documented the hard truth in contextualising the crisis was unsparing.
“Civil servants’ salaries have grown by about 40% in real terms over the past 12 years, without equivalent increases in productivity,” it states.
“Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery.”
The reality of the economy
South Africa’s crisis has erupted. GDP growth in Q4 of 2019 was a mere 0.2%, the lowest reading since the 2008 global financial crisis, while the overall economy contracted by 1.4% in the same period. Fast-forward to three months into 2020, and the economy is in a technical recession.
The unintended consequences of this low level of growth has manifested in two ways:
- A substantial decline in revenue collection, with government expecting to collect R63.3 billion less revenue than projected; and
- Increased state borrowing to fund operations, with debt servicing costs accounting for 15% of every rand the government collects.
Correspondingly, the incessancy of load shedding in first months of 2020 has worsened the grinding towards a halt of the economic machine. We can expect even weaker GDP and economic performance in the future.
Whichever way you look at it, we are in deep trouble. Unless action is taken.
Yes, I’ve previously alluded to bold action being required and having someone from the ruling party stand up and loudly declare that this can’t go on. I am therefore pleased that the finance minister has at last revealed himself ready to wage war from within the alliance. And it seems he has the backing of the president, for now.
Ruinous public spending
Already, the unions have raged against Mboweni and Ramaphosa’s announcements, warning government not to change or freeze the current public service wage agreement of 2018. The alliance politics can be made or broken here – specifically with regards to Cosatu’s relationship with the ANC because within the federation, public sector unions are now the prominent power and influence how issues are engaged within the alliance.
Now, those intentions were made known by government leaders. And retort from collective organised labour was given.
Will it be government or labour that blinks first?
The 2018 agreement, an extract from which is shown below (with the 2020 increases due to kick in on April 1) was signed by 66% of all parties represented.
I for one support government’s stance of reining in the public sector wage bill as it seeks to reduce spending which, along with wages, has increased yearly.
For these reasons, in 2018, when the agreement was reached, government conceded that it had significantly exceeded the resources allocated for the compensation of employees in the 2018 budget. Furthermore, no provision was made for substantial improvements to salaries and other conditions of service that were agreed on. Simply put, government had to now find resources to accommodate the extra costs.
A case can be made that workers are not responsible for the current economic conditions or rising government debt that includes sustaining state-owned enterprises. However, a counter argument could be raised that government spending has increased for the very reason of sustaining compensation budgets that are increasing with each round of negotiations.
What all of this reveals is that taking appropriate government action on spending, servicing debt and maintaining a ballooning wage bill requires undoing what has always been done.
Therefore, the hard stance is necessary and most applicable to the current economic situation. However, to rescind on the already-in-action 2018 agreement would a bad move by government. It should let that stand.
Cosatu may appear to be a co-opted labour desk at the moment, but it still has the capacity to mobilise. Interestingly, this particular issue might be the catalyst for Numsa and the EFF to rally behind Cosatu. It might also draw other unions, even those outside the public service, into the discussion.
And so it begins. But how will it end, and who will have the last word? We watch the space.