Business

Inequality gap closes as the state's wage bill swells

Lynley Donnelly

Ballooning government wages are helping to close the income inequality gap between white and black South Africans.

In 2000, the average black South African earned 15% of the average white South African's income. (Gallo)

But the growth rates seen over the past decade are increasingly unsustainable.

This is according to Peter Aling, an analyst at Prophet Analytics, which released a report on salaries in the civil service on Wednesday.

The report found that income inequality between the races, especially between blacks and whites, was declining sharply, driven by employment in the civil services. It argued that, counter to the government's assertions that 35% of its total budget was spent on wages and employee benefits, the figure was closer to 88%.

In 2000, the average black South African earned 15% of the average white South African's income, but by 2011, this figure had risen to 40% according to the report.

The growth was thanks to the civil service, which employed 2.83-million people, or roughly one in five South Africans. The proportion of government employees who are black had risen to 74%.

The state was giving the "wrong" impression that it spent roughly a third of its budget on salaries, according to the report.

Government value add
"By lumping current (short-term) and capital (long-term) expenditure together, purely to create a large denominator over which to divide, the ratio of wages to total expenditure seems to be low only because the expenditure side of the ratio is unduly inflated by all manner of expenses that do not rightly belong there," it said.

The government's wage bill actually represented closer to 88% of the government's final spending, said Aling. "This is a measure of the spending related to actual government delivery and not that of outside suppliers ... It is a truer measure of government value add."

A large part of the rising government wage bill was related to unionisation – with 76% of civil servants belonging to a trade union – but wage increases through promotions and job regrading was a more significant contributor to this trend, according to the report.

"Officially, the government's wages have increased by just 5.4% a year in recent years, but the twin mechanisms of promotion and job regrading, which are not subject to public sector wage agreements, [were used] to increase the income of black civil servants. The result [is] that average remuneration for public sector workers is now 32% higher than that of private sector workers," the report said.

Currently, 1.3-million black people, around 14% of the black workforce, earned as much as or more than the average white, it noted. This was up from 270 000 in 2000, an increase of more than 1-million, or 378%.

Double-edged sword
The trend represented good news because racial income disparities were declining, said Aling, but it was a "double-edged sword".

The income disparities were declining, but wage increases were being driven largely by government employment.

Similar rates of income growth, as seen in the past decade, could not be expected in the years to come, or this would make the government entirely unsustainable, said Aling.

Finance Minister Pravin Gordhan recently revealed in Parliament that the most recent public sector wage settlement would cost an additional R43-billion in the coming three years.

In response to a question from the Democratic Alliance's spokesperson on finance, Tim Harris, Gordhan indicated that the cost of the agreement would be R5.5-billion for the 2012-2013 year, followed by R9.2-billion in 2013-2014, R11.4-billion in 2014-2015 and R17-billion in 2015-2016.

But Gordhan said the cost of the agreement would be financed from drawdowns on the state's contingency reserves, as well as the reprioritisation of expenditure and internal savings.

"Therefore, the wage settlement will not increase the deficit or entail the government having to borrow to finance this expenditure," Gordhan said.

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