Unresolved public sector wage bill clouds MTBPS

But detail needed on other spending cuts.
Image: Waldo Swiegers / Bloomberg

Starting in the February 2020 Budget and continuing in the June Supplementary Budget, the government has committed to significant expenditure consolidation.  Unfortunately, with only a few days to go before minister Tito Mboweni tables the Medium-Term Budget Policy Statement (MTBPS), the question of public sector wages still remains unresolved.

Cumulatively, the National Treasury has budgeted to spend R390 billion less than they had previously projected over the next three years.  In February, they budgeted for a cumulative R160 billion worth of expenditure cuts.  This was increased by a further R230 billion in the June budget as the National Treasury tried to provide a consolidation path in the face of a R300 billion shortfall in this year’s revenue collections.

The initial R160 billion reduction was from wage cuts.  This was already quite ambitious.  Of this R160 billion, R37 billion was budgeted to be reduced in the current fiscal year, which required the government to renege on their existing three-year wage agreement.

Perhaps it would be useful to go over what this wage agreement entails and the fiscal circumstances under which it was entered. The wage agreement was a result of about nine months of negotiations, from October 2017 until June 2018, and was back-dated from April 2018. For the fiscal year 2018/19 government employees received a wage adjustment ranging from CPI + 0.5% – CPI + 1.5%. The CPI number used of 5.5% was circa 1% higher than the average CPI of the previous fiscal year and the first two months of the 2018/19 fiscal year. In addition to the salary adjustment, the agreement included pay progression of 1.5% for all employees per annum, and other benefits which include a monthly R1 200 (inflation-adjusted every year) housing allowance.


Even at that point, this wage agreement was unaffordable.  Only a few months earlier, in the February 2018 budget, the government had committed to containing the public sector wage bill.  At that time, it was pointed out that the level and rate of growth of compensation was a large concern, as it was crowding out spending on capital expenditure. In the fiscal year ending 31 March 2018, current expenditure was 60.5% of total consolidated government spending, with three-fifths of that being compensation.  The growing share of wages in government spending started eroding the infrastructure budget in 2012.  By 2018, wages were eating into the budget for non-wage consumables.  Provincial health departments were struggling to pay suppliers in the final months of the fiscal year.  This toxic spending mix meant the government had limited ability to improve the economy’s anaemic long-term economic growth.

In response to the government’s refusal to implement agreed wage increases this year, the unions have taken the matter to court. While progress on the case is expected in November, a final resolution is likely to take several more months – and could drag on beyond the February 2021 budget.

While the MTBPS will not be able to provide clarity on the wage bill, it should provide more detail on the additional R230 billion worth of expenditure cuts planned under the active path.  If fiscal slippage on expenditure cannot be avoided, then believable commitments on controlling expenditure are needed.   Any allocation of funds to SAA should be accompanied by the announcement of a competent partner who will take over control of the airline. This will promote confidence from investors and businesses.

Investors, particularly bond fund managers, will also be hoping for a reduction in current weekly bond issuance. As issuance is currently running somewhat ahead of requirements for the current year, National Treasury should take the opportunity to reduce the weekly auction size.  Reducing issuance would send a very positive message to the bond markets – and encourage more local and international fund manager take-up.  It would indicate a commitment by National Treasury to stick to the MTBPS – rather than retaining optionality for future issuance increases.  Reducing issuance at this juncture will lead to lower bond yields, thus reducing borrowing costs.

In the recent economic recovery plan, the president announced “Operation Vulindlela”, whose purpose is to ensure rapid implementation of the initiatives announced in the plan. This would be a joint initiative between the National Treasury and the Presidency. If Operation Vulindlela publishes a roadmap and key performance indicators and holds officials accountable against that roadmap, this would be positive. To encourage confidence, the MTBPS should provide more detail around how Vulindlela will operate and who will lead it.

In this MTBPS, the National Treasury cannot guarantee a significant part of the fiscal consolidation, which is the curtailment of wage increases.  Markets know not to expect this.  However, much more detail is needed on the plans to curtail non-wage expenditure over the next three years. Markets want reassurance that something closer to the active path the Supplementary Budget outlined is achievable.   If the Finance Minister simply provides a trading update, that will put upward pressure on bond yields and therefore increase the borrowing costs.

Nazmeera Moola, head of SA Investments, and Sisamkele Kobus, analyst, Ninety One.

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The entire public service and SOEs are in effect just charities for otherwise unemployable ruling party supporters. Unless more than half of them are fired and the rest’s salaries cut by a third, there is no hope of any economic recovery.

There are alot of people that actually do work and they deserve an increase for ensuring that SA kept on working especially during the pandemic. Gov must stop stealing money and pay their employees and recover money stolen. That’s what must be done for our economy once we eliminate corruption and become open and transparent in the processes of Government we will restore our image with would benefit the economy.

From the research which I have done the average Goverment spends about 20% of its revenue on wages and salaries.

Countries which are largely socialists tend to spend upwards of 30%.

This does not include State Owned Enterprises.

South Africa is sitting around 35%.

This all means that their is less to spend on infrastructure and expenditures which are pro growth.

We need to start privitising municipalities and state own enterprises, allowing the free market principles to rationalise our spending whilst also creating a more competitive job market.

The government is a parasite that feeds on private property. This collectivist monster contributes nothing to society it only consumes precious resources. This parasite is smothering the profit objective that forms the basis of every form of taxation. The consumers in a free market use the highly efficient tool called the profit motive to incentivise entrepreneurs to take risks, employ capital and labour, to supply consumers with the best products at the best price.

When the collectivist parasite smothers and kills the profit objective, it also destroys the availability of affordable products and services to consumers. The government takes away the incentives that motivate entrepreneurs to put consumers first and then punishes the remaining entrepreneurs with all forms of taxes.

The ignorant collectivist confuses the profit objective with greed. They ignore the fact that greed is a basic human condition inherent to both collectivists and capitalists. This issue of greed lays bare the most basic differences between the two concepts of shared resources and private ownership. In a free society, the consumer has alternatives and nobody forces him to support any product at any price. All purchases are voluntary and the alternatives are abundant. The consumer rewards the entrepreneur for supplying useful products and services by handing him a profit. It is impossible to become wealthy in the capitalist system if you do not serve the consumer in some way or another. In this system, wealth is not a sign of exploitation but a sign of the successful and continual service to society.

For the collectivist, on the other hand, it is impossible to become wealthy without plundering the shared resource. This is the crucial design flaw in the collectivist system. This is why they all implode. The system of shared resources incentivises the most unscrupulous individuals in the community to exploit the resources, for his personal gain, at the maximum rate. This is why people who grew up in the collectivist or communalist system, think wealthy entrepreneurs in the free market are greedy. They fail to comprehend that greed is good in the free market system. Greed motivates entrepreneurs to serve his king and master, the consumer who determines the size of the reward every day.

Without the private ownership of property, there cannot be an objective price signal that tells entrepreneurs what consumers want. The absence of property rights removes the profit objective and entrepreneurs have no way of knowing what consumers need. This lack of positive motivation and price signals leave the entrepreneur in the collectivist system with no choice. He can only plunder the shared resource. The collectivist system incentivises plunder and punishes service delivery.

South Africans are innovative and entrepreneurial people, but they are also collectivist and the government is socialist. This is why the system incentivises and rewards the plunder of the shared resources at municipalities and SOEs. The consumers are the ultimate losers and the most unscrupulous and greedy collectivists are the beneficiaries of this flawed system. The bankrupt SOEs and municipalities, the highest unemployment rate in the world, the most militant labour unions in the world, the rigid labour laws, the Debt/GDP ratio and the Budget Deficit that are out of control tells us that these collectivists are very greedy. Only property rights can turn this ship around.

The Greek economy, prior to 2008, shows us the way. A huge black market, with trading in other currencies, is the way to go. Declare only the minimum to the vampire state, and carry on your business away from its grasping greed.

There is no public “service” , unless standing in queues is considered to be good for ones health and closing a Telkom account considered as a challenge in patience and ingenuity !

Telkom is a private company. What does it have to do with “public service”

My guess is that the ANC will, irresponsibly, milk the public sector wages bill for as long as it can up until SA needs an IMF bailout.

They do not have the courage or moral fortitude to do the right thing.

Wage bill: when are these people going to get salaries slashed due to covid – private sector staff are now either jobless or on far smaller salaries than pre-covid.
Clearly the ANC misspent tax for decades to buy votes!

100% in support Louise. State employees did not even experience the Covid impact retrenchment wise. Private sector bore the brunt & it was ugly. Now the state expect to collect the same level of tax. Forget it!

In fact, state workers salaries “increased” during lockdown…many worked one week on, and alternate week OFF (doing nothing…on holiday)…and still got SAME pay. That means they effectively got paid double.

NOW the time for State to feel the pain. No more tax.

Anything involving a visit to a state department such as home affairs,traffic,visa requirement induces a feeling of dread. You have no idea what a feeling of freedom I experienced when I finally cancelled my Telekom account.

For the first time in years I had to buy a postal order this week. Two mornings the system was offline; success the third morning. The system requires the postal worker to enter everything by hand into the system and then you wait with bated breath to see if the system is up. Incomprehensible waste of time for everyone concerned.

On the upside, the lady was friendly and a sense of humour.

Wow! Who on earth requires a postal order? Your great-great granny, hahaha?

Public Service. Try to renew your gun license. Anything between 6-12 Months.

When in Rome, get a throwaway, and do exactly that when needed!

…yes, gun license renewals are a PAIN in the ANUS. Better to just get it renewed like car license. You get it automatically, unless you have a criminal record.

Here in SA, people drive completely reclessly, and have caused accidents/deaths (so they’re driving a killing machine), but get his drivers licenced renewed WITHOUT QUESTION how his/her insurance record looks like, hany many accidents caused, etc.

How many people get killed on the roads (by stupid, careless) other humans? Like 14,000p.a.

But you & I have to motivate why we need a gun to protect life and limb, since we have a Police force. Hence the agenda is proven than ANC wants to disarm citizens.

I happen to be one of the affected public servants. Myself and many others actually do alot of work that goes unappreciated. I’ve been working since the Level 5 lockdown began, to assist my fellow citizens despite the danger it posed but I did so, because I am an essential services staff member. For Government to not honour their agreement it is unfair and insulting because alot of us work hard and we’ve kept SA going, whilst they looted money meant for our fight against Covid-19. We are grassroot employees only asking for our money due to us, and it is needed right now. We are not asking for much, we just want fairness to prevail. They used our pension fund to get their loan for e-tolls, they gave our money to SOE’s that wasted their bailouts… that is not fair, just give us what is due to us, Please Minister Mboweni

End of comments.

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