Howard Barrell
The government is seeking to avoid a political train smash with public service unions by overhauling the civil service pay structure that would automatically fix most annual increases at about the rate of inflation. But these government proposals – at the centre of its plans to improve the civil service while halting the increasing costs of running it – could run into serious opposition.
Unions are suspicious of government proposals to redesign benefits enjoyed by higher earners in the public service, such as housing allowances. They are sceptical about plans to contract out service functions, such as cleaning. They are concerned about what measure of inflation may be used to determine annual increases. And unions are worried by government arithmetic showing the axe could fall on tens of thousands of jobs at the lower- earning end of the service.
The government is consulting interested parties on its proposed new salary structure. It is suggesting public servants receive annual pay rises of inflation plus 1%, say well-informed sources close to the consultations.
There are several controversial issues around this formula. First, it entails scrapping “rank-and-leg” promotions – a system of automatic increases for public servants. Second, the extra 1% above inflation will not reach all civil servants. Instead, it will go to those public servants deemed to have performed adequately. The aim is to build a service motivated by an ethic of merit.
And third, it is not clear what measure of inflation the government intends using. Will it be the rate of inflation expected or targeted for a particular year?
The government will soon introduce inflation targeting. This involves the government setting a target for inflation and adjusting interest rates and other instruments to achieve it. This target will initially tend to be lower than the rate of inflation expected. So, if targeted inflation is the benchmark for salary increases, then these increases are likely initially to be lower than if actual or expected inflation was the measure.
The introduction of inflation targeting is being masterminded by Minister of Finance Trevor Manuel and Governor of the Reserve Bank Tito Mboweni. Manuel is expected to announce in his budget speech when it will be implemented.
But there are sound reasons to make targeted inflation the measure. Inflation targeting is a way of managing expectations. If the government held down public service pay to the inflation target, this would be a signal that it was serious. It might also have a substantial direct effect on the economy. For public service salaries currently account for 51% of all government spending, excluding interest payments on state debt. That is about 11% of all economic activity in the country (measured as gross domestic product).
The scrapping of rank-and-leg salary increases will help halt the recent seemingly inexorable rise of the government’s salary bill – from 47% of non- interest spending in 1994 to 51% now.
But far deeper cuts look likely. The government believes there is not a surplus of personnel in the upper levels of the service – managers, teachers, doctors and the like. In some cases there are shortages. And some salaries at these upper levels compare unfavourably with the private sector.
The opposite is the case at the lowest- earning 20% of South Africa’s 1,1-million public servants. Their pay sometimes exceeds that in the private sector. There are many more of them than the government thinks necessary. And their tasks – like catering – are those which can most readily be outsourced. The greatest surpluses of lower- paid staff are in the poorest provinces. Deep cuts are therefore likely among those public servants least able to find other work.
However deep the cuts at these lower-paid levels, though, they will not save as much as the government wants to. The biggest savings are likely to come through the restructuring of remuneration at the upper levels. Housing, car and other benefits enjoyed by senior public servants make up a big portion of the salary bill. It is estimated that, if all those entitled to benefits took them all up, this would add a further R10-billion to the government’s salary bill and make it 56% of all non- interest spending – far beyond what the state can afford. Many of these benefits are likely to be redesigned, if not cut.
The government believes more collective buying of benefits by public servants may help offset its unwillingness to foot the full bill for them. It is also looking at reducing its contributions to employees’ pensions from 15,5% to 13,5%.
The scene is set for a sharp encounter. Alta Flscher, programme manager in the Budget Information Service of the Institute for Democracy, points out that, whereas the public service bargaining council is a place for dealing on detail, the trade unions may want to turn it into a forum to discuss deeper political issues about the role of the civil service and state in society.
“This is because the deeper debate has been largely avoided elsewhere,” she said.