National Treasury and trade union federation Cosatu on Friday butted heads on plans to contain the public wage bill as the Finance Department reiterated its call for fiscal consolidation and a shift to zero-based budgeting.
Edgar Sishi, the head of Treasury’s budget office, said that at an annual cost of R637 billion (US$40 billion) out of a non-interest spending budget of just under R1.6 trillion, the public wage bill had not only outstripped growth ahead of an unprecedented economic crisis but started exceeding private-sector salaries.
We have shifted from a situation where public servants would have received compensation increases from a little bit less than economic growth to a situation where now the public servants receive an increase in their salaries that very noticeably outstrips economic growth
“When we talk about our proposals on the wage bill, which is effectively a wage freeze, and when we talk about our proposals for the current round – don’t miss the historical reality and the current reality, which is, public servants have been for many years receiving increases that have outstripped the overall growth of the economy.
Sishi said this has been the case for the past 15 years at least, adding that their increases outstripped overall price increases and the imbalance was part of the reason for the fiscal challenge the country now confronted.
“This differentio in pace is part of the challenge where we have now ended up this year that the public wage bill of the non-interest spending budget of just under R1.6 trillion, R637 billion of that is being spent on the salaries and wages of public servants.“
He said the argument that public servants would defect to the private sector, taking with them valuable skills and expertise, did not hold water because there was clear evidence that salaries, including at entry level, were now higher in the civil service.
“More than 95% of public servants now earn more than 50% of all the registered taxpayers in this country.”
He said this had furthered an expansionary trajectory that needed to be halted and it was a misperception that had it not been for spiralling debt service costs, South Africa would have been on sound fiscal ground.
“We are experiencing an unprecedented crisis, an extraordinary event which has put all of our forecasting models … under a great test.“
Sishi said in this aggravated context of the Covid-19 pandemic the conversation Treasury was seeking was shifting budgeting away from a compensation model to an investment model. The options to stabilise the fiscus had become increasingly limited “if we are to avoid a distress episode and a crisis”.
He said fiscal multipliers, the return yielded by government spending, had weakened dramatically primarily because the state had accrued debt not exceeding 80% of GDP.
“We have such a heavy load that the benefit of government spending is counteracted on the other side by the debt, and the cost of that debt, and in addition to that we also have a problem with composition of expenditure.”
Sishi said ongoing negotiations about reining in the public wage bill were part of a broader conversation about how the government should be costed, and he understood that the sacrifice asked of public servants was not small.
“We do understand that the reductions are substantial, and they are unprecedented, and we are aware of the risks in that regard.
“We consider that these spending reductions and the overall need to close the fiscal gap is about us having a conversation as a country and as government and we have started doing this and we have presented numerous options to Cabinet about the structure, the effectiveness and the affordability of government.”
Cosatu’s parliamentary convener, Matthew Parks, commented that low-income earners could not afford to go for four years without salary increases.
“This would be the effective result in Finance Minister Tito Mboweni’s plan, confirmed in the medium-term budget policy statement last week, to freeze wage increases for three years were implemented.
“The government has already refused to implement the last round of increases from the previous three-year wage determination agreement.”
Parks said National Treasury and others pressing for wage containment were planning to make public servants alone pay for the cost of corruption.
But Sishi said the figure of R100 billion in funds lost to corruption cited by Cosatu needed to be broken down to understand that, firstly, not all of that was due to graft but some to waste, and secondly that correcting the cause of losses would not suddenly bring the money back.
Mboweni’s commitment to cutting the wage bill is expected to lead to a battle with the labour movement. The minister last week said he hoped it would not lead to a civil service strike but the foremost consideration in his mind was holding the fiscal line.
Treasury aims to contain growth in the wage bill to 1.8% this year.
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Source: IOL
