State wage bill ‘a critical impediment to SA’s economic recovery’ – Busa

Country faces fiscal cliff if issue is not addressed.
Cas Coovadia, CEO of Business Unity South Africa. Image: Supplied

Given the perilous state of the government’s finances, slashing the public sector wage bill is a critical impediment to South Africa’s economic recovery plan, Business Unity SA (Busa) CEO Cas Coovadia warned in a briefing on Monday.

“As South Africa considers the path towards recovery and the risks the government’s fiscal policy poses to that recovery – the capacity and cost of the state and in particular the public sector wage bill is a crucial factor,” he said.

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Read:
Mboweni finally moves to slash government wage bill
Cosatu: ‘We’re not going to entertain an across-the-board wage freeze’

Busa is upping its ante around the hot button issue following Finance Minister Tito Mboweni tabling the 2020 Medium-Term Budget Policy Statement (MTBPS).

The organised business federation is effectively backing Mboweni, who himself has warned about the state’s ballooning wage bill putting the country at risk to a debt and potential fiscal crisis, if not brought under control.

Busa commissioned Intellidex to do a research report on various aspects of SA’s public wage bill, to reinforce its position on the matter.

The report titled “The Public Sector Wage Bill – an evidence-based assessment and how to address the challenge” was released on Monday, ahead of Busa’s briefing.

Read: Mboweni: Close the hippo’s mouth or face Argentina-like debt crisis

“Downward adjustments to the state’s payroll can be made either by reducing wages, reducing headcount, or doing both,” Coovadia said, as he reiterated suggestions contained in the report.

“These are very difficult decisions, but the country has jumped off the cliff and we need to achieve a soft landing,” he said, adding that hard decision need to be made.

“An essential element of a soft landing is a decrease in the public sector wage bill. If we assume a drop in nominal GDP of 4% this year and increases of 4% in each of the next two years, and we want to decrease payroll costs by 10.5% by 2025/26, aggregate payroll costs can increase by no more than 1.8% a year in nominal terms,” he pointed out.

Coincidently, the proposed contained growth of 1.8% in the public sector wage bill is a figure also cited by Mboweni in his latest MTBPS.

Speaking during Monday’s briefing, Business Leadership SA’s outspoken CEO Busi Mavuso said if the issue is not dealt with, the country risked further credit rating downgrades.

“We all know what’s at stake – a fiscal debt crisis within three years… The public sector wage bill is one of the biggest challenges SA faces,” she said.

Questioned if there is political will to address the issue, Mavuso added: “By-and-large there is political will, especially by the Finance Minister who is throwing the kitchen sink at the labour constituency [on the matter].”

Meanwhile, Coovadia noted that SA’s high public-sector payroll costs were rising too quickly despite public-sector employment being increasingly unproductive.

“Cutting the public sector wage bill is a tough task and will require government, labour and business working together to achieve this,” he said.

Highlighting key aspects of the report around the state’s wage bill, he said the study showed that there is no “optimal” size for a public service, however, SA “probably needs one that is reasonably large” because of the socioeconomic issues that need to be addressed.

“The report finds the South Africa public service is not large in per capita terms, but unusually well remunerated, when compared to a basket of 46 countries looked at by the International Monetary Fund [IMF],” said Coovadia.

Public sector wages in SA are higher than the average of the countries in the IMF’s Worldwide Bureaucracy Indicators (WWBI) database, which includes the likes of Bangladesh, Greece, Brazil, Norway and Denmark. Countries from Europe, Africa and South America are part of the database, with a large number being emerging market nations.

Other highlights include:

  • Payroll costs in SA are larger than the global norm as a percentage of GDP, public spending, or tax revenues. Public sector wage increases as a percentage of tax revenues has grown from 31% before global financial crisis to 41% in 2009/10, in face of global slowdown, and has stabilised to around 37%. The percentage exceeds 50% of revenues this year and will be 47% next year and 45% in 2022/23.
  • The average remuneration of public servants in SA is high by international standards and when compared to private sector employees and per capita GDP. Teachers’ salaries, measured in purchasing power adjusted US dollars, are nearly 50% higher than the OECD (Organisation for Economic Co-operation and Development) average.
  • The IMF data on 46 countries for 2017, shows public sector compensation for national government, provincial government and state entities was an average of 9.4% of GDP. SA was at 11.6% (25% higher than international average) and 15% of GDP in 2019.
  • Compensation spending went up from R154 billion in 2006/7 to R518 billion in 2018/19. This is a 78% inflation-adjusted increase, while increases in headcount went up by 22%. Payroll costs have increased by a compound average of 10.5% since 2006/7, compared with average growth of nominal GDP of 8.2%.
  • Fastest increases are at bottom of staff distribution.
  • There is no indication that there are any productivity increases to justify wage increases.
  • Increase in wage costs from 2006-2019 outstrip the rate of economic growth and productivity.

While the report recognised differences in constitutional models between the countries featured in the IMF’s WWBI database, Coovadia noted that “it is clear that SA” has the highest ratio of compensation to public spending, with over 35% allocated to compensation.

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Hello ANC , are you listening?

The wage bill, the Elephant in the room

They the ANC know this

Sadly the unions run the show so expect the oversized wage bill to be around forever whilst the useless ANC ate the Government

Good Luck to us all. The pain of Covid has not been shared equally amongst us and the ANC keep on preaching an equal society

Let’s not get alarmed too early. SA’s fiscal cliff is still a long way off into the future.

The reason for that is….

ANC ‘a critical impediment to SA’s economic recovery’

Shocking to think the ordinary tax-payer works some 3-4 days a month for civil servant wages. Civil servants, in turn, could not give a damn about service delivery. Sounds like a form of ‘state capture’ to me.

Those among us who are realists, too few, I fear, know that all Cosatu members, members of the Tripartite Alliance, each and every government employee, as well as all municipal workers and cadres deployed at SOEs, will take a haircut, either directly through a wage freeze, or indirectly through Zim-style hyperinflation. These are the cards on the table, and the IMF holds the joker.

They will accept a wage freeze and layoffs, or the purchasing power of their inflated wages and their pension funds will be stealthily confiscated to pay down government debt through a process of devaluation of the currency. They will pay through a process they understand, or they will pay through an opaque process of money-printing. But pay, they will. They can offer to pay via the front door, or the Reserve Bank will carry their purchasing power out the back door while they are asleep.

The union members have squandered their options. They have painted themselves into a corner. Payday has arrived, and it is not the type they expected.

Despite all the reports and discussions and conferences and legkotlas and ……., absolutely nothing will happen. Indeed, we may find that after all is said and done, the public service get further, above inflation, pay increases over the next three years. We know the ANC …. say one thing, do the opposite.
In any event, how can the government moderate pay increases for the public service when the unions are in control of the economy?

End of comments.

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