Wasteful expenditure by local government undermines claims that the 15% wage increase demanded by municipal workers could negatively affect the economy say, labour experts.
As the South African Municipal Workers’ Union (SAMWU) continued its crippling round of strikes on Thursday, private sector economists have raised concerns about the impact wage settlements could have on South Africa’s inflation outlook.
In the midst of the first economic recession in 17 years, government is also seeing shrinking revenues from corporates and registered taxpayers, fuelling fears that wage hikes will widen the states budget deficit.
The deficit is expected to rise to over 5% of GDP this year due to the effects of the economic recession.
But according to Kimani Ndungu, researcher at the National Labour and Economic Development Institute, concerns about South Africa’s widening budget deficit are unfounded, especially in the light of wasteful expenditure.
‘Government can borrow more money,†he told the Mail & Guardian.
‘The obsession with a small budget deficit is unrealistic for the needs of a developmental economy such as South Africa’sâ€.
Ndungu argues that external shocks such as rising oil prices and volatile capital inflows — or money invested in local stocks — have a far greater impact on the economy than wages.
Government will have to re-evaluate the real economic value of projects that have cost the state and municipalities large amounts of money, without evident benefits.
‘There has been a great deal of wasteful expenditure,†said Ndungu.
Haroon Bhorat, director of the Development Policy Research Unit (DPRU) at the University of Cape Town said government faces a massive trade off.
The country’s growth since 1994 has seen wealth increase at the upper levels of society. Government has then used this wealth growth to fund social spending, increasing the social safety net for the very poor.
‘But there has been something missing in the middle,†he argued.
‘Workers [in this strata] have not seen the increases in wealth that the rich have, nor has their social support increased and that is playing itself out now, unfortunately at a time when government’s revenue is in decline.â€
‘There really is no easy answer.â€
The municipal workers’ strikes have coincided with numerous service delivery protests around the country, as poor communities rail against the dearth of basic provisions like clean water, sanitation and electricity.
The Auditor General recently tabled in Parliament his report on the state of municipalities. Of the 291 municipalities and municipal entities audited, only eight achieved unqualified audit reports while 19% of local councils did not even submit statements.
But one analyst who did not want to be named said this poor performance cannot be laid at the feet of municipal workers.
‘Bad service delivery is due to bad management,†he said
‘The declines in capacity from national government to provincial and then from provincial to local become particularly acute. This leads to poor management, fewer controls and greater corruption.â€
But Dennis Dykes, chief economist at Nedbank argued that a massive fiscal deficit can lead to greater debt, higher inflation and renewed interest rate hikes, which could squeeze the economy further.
Alternatively, government could cut back spending on other vital services such as health he said.
‘One has to sympathise with people who want decent wages but this is in a situation where many people are losing their jobs.â€
Mzwanele Yawa, spokesperson for the South African Local Governement Association said it does not believe the settlement would comporomise service delivery.
”The existing wage and salary expenditure management framework provides that if an employer is not able to meet the requirements of the agreement, it must apply for exemption from those terms through the South African local government bargaining council,” he said.
”This agreement in our view, has balanced all interests and we think the public must have no doubts that at the end service delivery will be enhanced.”
