Dondo Mogajane, director general of the South African National Treasury, Enoch Godongwana, South Africa's finance minister, David Masondo, South Africa's deputy finance minister, and Edward Kieswetter, commissioner of the South African Revenue Service (SARS), (left to right), make their way to the budget presentation in Cape Town, South Africa, on Wednesday, Feb. 23, 2022. South Africa cut corporate taxes and set more ambitious targets for reducing debt, after a surge in commodity prices led to higher-than-expected tax income. (Dwayne Senior/Bloomberg via Getty Images)
A strike looms in the public sector, as a number of unions have rejected the government’s latest wage offer.
The public sector wage battle will weigh heavily on deliberations in the build-up to the medium-term budget speech later this month. Earlier this year, when Finance Minister Enoch Godongwana delivered his maiden budget speech, South Africa’s fiscal position had improved.
But the February budget flagged the public sector wage bill as a significant risk to the country’s purse.
The latest round of wage talks began in March. Since then, workers have found themselves in the throes of a cost of living crisis, which could force the government to fold on its hard line against more spending.
Austerity vs reality
Reining in the public sector wage bill has been a cornerstone of fiscal consolidation.
Growth in the wage bill was tempered by the government’s decision not to implement the final leg of the 2018 wage agreement, which exceeded what was budgeted for.
The February budget pointed out that the next battle would be the 2022 wage talks, which recently hit another snag when the Police and Prisons Civil Rights Union, the National Education, Health and Allied Workers’ Union (Nehawu) and the Democratic Nursing Organisation of South Africa declared a dispute on the current 3% offer. The offer includes a R1000 non-pensionable gratuity, which will be paid until March 2023.
Last week, the Public Servants Association (PSA) announced it had also rejected the offer, saying the increase fails to “address realities such increased interest rates and steep increases in cost-of-living expenses”.
In a joint statement released on Wednesday, Godongwana and acting Public Service and Administration Minister Thulas Nxesi noted that the government has considered the issue of the rising cost of living, including in respect of public servants.
The current offer, they said — which, if the total package is taken into account, actually amounts to a 7.5% increase — is a generous one considering the current fiscal position.
The wage bill has grown faster than economic growth over many years, the statement concluded. “Despite this, we have continued to ensure that public servants are reasonably cushioned against the rising cost of living without crowding out social expenditure. It is a difficult balancing act.”
Sanisha Packirisamy, an economist at Momentum, said there are three major risks to fiscal spending that will factor into medium-term budget deliberations: solving Eskom’s debt, the R350 grant and the public sector wage bill.
“Because we are facing very high food and energy costs, there is quite a significant push from labour’s side to make sure they don’t get a below-inflation increase,” Packirisamy said.
“I think risks of government not meeting targets on the wage bill are quite high in light inflation, which is much higher than they envisaged a couple of months ago.”
Packirisamy noted that mining revenue overruns might be used to pay for the higher wage bill.
“We could get away with paying more than what was budgeted for simply because of the revenue overrun from the commodity windfall. But, unfortunately, this is not going to last forever. So we do need to have some sort of permanent structure in place to start reining in the public sector wages.”
Last month, after the government tabled its latest offer of a 3% salary increase, Nxesi said the wage talks are taking place “under a difficult financial situation and when the rate of unemployment in the country is high”.
‘Miserable’
Considering the current cost of living crisis, Nxesi’s observation is a significant understatement. Even though inflation and unemployment have recently moderated somewhat, South Africans still face huge financial constraints — each of which have factored into recent wage talks.
Solly Phetoe, Cosatu’s freshly elected general secretary, said the high cost of living has plunged the labour movement into a serious crisis.
Phetoe would not comment on the current wage talks, but said austerity had dealt a hard blow to workers.
Matthew Parks, the labour federation’s parliamentary coordinator, agreed. For workers, he said, “it has been quite a miserable two and a half years”.
Workers cannot afford to take a below-inflation increase, Parks added. “They really don’t have the option. They don’t have the reserves that a minister of finance might have,” he said, noting that Cosatu has pushed for reforms allowing workers to withdraw from their pension funds to provide them some financial relief.
The current economic conditions that workers face are unsustainable, Parks said.
Consumer inflation surged to 7.8% in July, marking the highest rate since 2009, when the world was still reeling from the global financial crisis. This number fell slightly in August, to 7.6%.
However, average inflation in 2022 is still expected to average 6.5%, which is still far too high for the South African Reserve Bank to bear.
This much was signalled in September, when the bank’s monetary policy committee decided to hike the borrowing rate by another painful 75 basis points. Two of the five committee members preferred a 100 basis point hike, suggesting policymakers are taking an uncompromising stance against inflation.
Higher prices and interest rates, which hit middle-income earners on both fronts, have eaten into household incomes. Growth in consumption expenditure by households lost further momentum in the second quarter with an increase of 0.6%, down from 1.2% in the first quarter.
The Reserve Bank’s recent quarterly bulletin noted that the debt burden of households rose in the second quarter, amid increased exposure to credit and higher debt levels and interest rate hikes.
Liabilities
Longer-term inflation expectations, which drive wage demands, have played a large part in the Reserve Bank’s efforts to rein in prices.
Elevated inflation expectations already saw Eskom workers winning a 7% salary increase.
At the country’s other embattled state-owned entity, Transnet, unions served strike notices after they rejected the offer of a 1.5% wage increase.
The South African Transport and Allied Workers Union and the United National Transport Union are demanding between 12% and 13.5%. In an attempt to avoid a strike, Transient raised its offer to 3%.
Wage demands at state-owned entities will also put pressure on the budget. State companies fall under contingent liabilities in which the government is the lender of last resort.
“So typically, you don’t actually want contingent liabilities to have a high percentage probability of being realised. In our case that probability is rising because of financial and governance problems at the state owned enterprises,” Packirisamy explained.
“So if the wage bill is too high relative to productivity levels that puts the particular state-owned enterprises into a more negative financial situation, which then raises the risk of that contingent liability materialising and becoming a part of government’s balance sheet.”
High unemployment also affects workers, as pooled finances become diluted. Though unemployment fell in the second quarter, from the record high of 34.5% to 33.9%, South Africa’s joblessness level remains among the highest in the world.
To put the current official unemployment rate into perspective, in 2008 — when the country was in the throes of the global financial crisis, with the economy recording its first recession in 17 years — it peaked at 23.2%, according to Statistics South Africa (StatsSA).
There was a marked increase in the number of public servants after 2008. According to a 2015 United Nations University World Institute for Development Economics Research working paper, more than half a million jobs were created in the public sector between 2008 and 2014.
Growth in the civil service led to the rise of public sector unions. Today, Nehawu is Cosatu’s largest affiliate.
Human capital
Mugwena Maluleke, the general secretary of the South African Democratic Teachers Union (Sadtu), said high levels of unemployment have a crushing effect on civil servants. Unlike some of its fellow Cosatu unions, Sadtu has okayed the government’s 3% offer.
“It puts a lot of pressure on them, because they are mostly the only ones who are permanently employed in their families. So, therefore, they have got to support those who do not have jobs.”
Government is the second-largest employer, according to StatsSA’s quarterly employment statistics. With 1.2 million workers, provincial departments are the single biggest employer in the country.
The PSA’s Reuben Maleka said civil servants are feeling despondent. “Generally they are facing serious economic hardships. That means that, as unions, we need to work together to make sure we get a good outcome in these particular negotiations.”
Zimbali Mncube, budget and tax justice researcher at the Institute for Economic Justice, said low morale in the public sector inevitably results in low productivity, which is one critique often used to lobby against workers.
“When people are working in an environment that is not rewarding them adequately … I think it is an unfair critique in the sense that those who are higher up in the public sector earn much more than regular workers, but they don’t receive this level of criticism.”
A robust public sector is an important driver in the economy, Mncube said. “Public services play an important role in the long-term development of human capital,” he said.
“And so, if we underfund public services in the manner that the austerity measures are doing, the government is contributing to persisting levels of low economic growth.”
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