Former Finance Minister Tito Mboweni’s unpopular decision to implement a three-year wage freeze for SA’s 1.2 million civil servants begins to bear fruit, as the National Treasury progresses in stabilizing its remuneration expenditure in the public sector.
At 665.7 billion rand in fiscal year 2021/22, civil servants’ compensation is the largest component of total government spending, accounting for a whopping 35%. The government spends a large part of its budget to compensate only 2% of South Africa’s population.
According to the 2021 Medium-Term Fiscal Policy Statement (MTBPS), the cost of civil servants’ compensation will increase from Rand 665.7 billion in fiscal year 2021/22 to Rand 665.2 billion in 2022/23 and will drop again to 656 rand. -billion in 2023/24. Then the cost will increase by 685.1 billion rand in 2024/2025 as some civil servants retire, paving the way for their retirement benefits to be paid.
Over five years (2021 to 2024), the average growth in government spending to pay civil servants is expected to be 1%, a marked improvement over recent years when average growth was above 5%.
Mboweni’s successor, Enoch Godongwana, has now been given the political hot potato to be firm with the unions representing civil servants in rejecting their demands for anti-inflationary wage increases.
Mboweni and his Cabinet colleagues recently signed a one-year wage hike deal to settle a dispute with unions that rejected proposals for a three-year wage freeze. For 2021, civil servants received a 1.5% salary increase, which was further softened by a monthly cash allowance of between R1220 and R1695.
This sliding scale ensured that all civil servants received R 1000 per month in their pockets after tax, regardless of their salary level or number of years of service. The 1.5% salary increase was already budgeted for, but the cash allowance was not. In other words, it was a new expense.
According to the MTBPS, the cash allowance is expected to cost the government 20.5 billion rand in 2021, which is already included in the total compensation expenditure of 665.7 billion rand. The actual cost of the cash allocation is much higher than initial projections, as the Treasury estimated the cost at R18 billion. To fund the cash allocation, the Treasury will withdraw money from the Infrastructure Fund, a government initiative to fund infrastructure projects to grow the economy and create jobs.
Godongwana now has two big obstacles to maintaining the stability of the public sector wage bill.
The next round of wage negotiations for 2022 between the government and the unions is expected to start in November, and a confrontation is expected. The unions plan to fiercely negotiate cost-of-living wage increases in 2022 and possibly make the monthly cash allowance a standard going forward.
In the MTPBS, the Treasury indicated that cash allocation may be a standard going forward. He has forecast an additional expenditure of R20.5 billion for the cash allowance if a 2022 wage deal is not reached with the unions. But another threat looms that could undermine Godongwana’s efforts to reduce the public sector wage bill to bring government debt and spending under control.
The unions dragged the government to the Constitutional Court to force it to implement 2020 anti-inflation wage increases of more than 5% that were promised by the government but were never implemented. The previous court (Labor Appeal Court) has already ruled in favor of the government, saying it cannot implement wage increases that were initially not affordable. The unions are appealing this decision.
If the Constitutional Court ruled in favor of the unions, the government would be forced to retroactively pay civil servants the 2020 salary increases. It is a big bill that the government will have to pay even if it cannot afford it.
The MTBPS notes that a court decision in favor of the unions “would have significant effects on the fiscal framework”, as the government would be forced to reduce the size of the civil service (possible job cuts) and increase its needs. funding. DM / BM