Public sector wage negotiations are gearing up as immense, new pressures are emerging for the 2018 budget next month.
If civil servants are granted their demands, the wage bill for 2018-2019 will consume almost 50% of all government revenue, according to Professor Jannie Rossouw, head of the school of economic and business sciences at the University of the Witwatersrand.
Public sector unions are seeking, among other things, salary increases of between 10% and 12% across the various salary bands and the abolishment of entry-level salary levels bands one to three.
Should unions be granted a full 12% increase, and assuming notch increases continue — the practice of routinely moving state employees up the scale within their salary level — the wage bill will become “clearly unsustainable”, Rossouw said.
The state and unions are nearing the end of a process of facilitation aimed at trying to find common ground, with negotiations set to begin in earnest on Wednesday, according to union representatives.
But with evidence of corruption and billions lost to wasteful expenditure, labour is fast losing patience with the argument that spending on state wages must be better managed.
“The issue of financial constraints is very clear to us,” said Tahir Maepa, the deputy general manager of the Public Servants Association (PSA). “But the state can’t argue that it can’t afford to pay workers when billions are being wasted and misused. We are not going to be sympathetic to a government that is reckless.”
Mugwena Maluleke, the general secretary of the South African Democratic Teachers’ Union and the lead negotiator of trade union federation Cosatu, said the state approached negotiations with the intention to delay and focused only on the percentage increase, ignoring issues relating to conditions of service.
“We are aware of the budget constraints. But the problem is not with the workers. The problem is with the political management that has allowed money to be stolen.”
Meanwhile, the treasury must deal with new pressures on the budget, chiefly how to pay for free higher education for students from poor families, which President Jacob Zuma unexpectedly announced. Eskom is also expected to turn to the fiscus for assistance because of major liquidity concerns, which comes on top of an existing shortfall of almost R51-billion in tax.
Estimates of the additional higher education costs range from R12-billion to R40-billion. Although Zuma said this would be phased in over five years, this week Finance Minister Malusi Gigaba said it will take eight years.
Rossouw estimated it could be about R20-billion a year, assuming accommodation, and tuition costs remained about the same amount.
He heads the fiscal cliff working group, which includes senior lecturers Fanie Joubert and Adele Breytenbach, of Unisa’s department of economics. Their research focuses on the point at which social assistance payments, civil service remuneration and debt-service costs will absorb all government revenue.
Before the higher education announcement, the group calculated that employee compensation, social assistance payments and debt-service costs will take up 72.5% of main budget revenue in 2017-2018.
But of greater concern than the additional costs is the revenue gap, Rossouw said. In the February 2017 budget, then finance minister Pravin Gordhan announced that it would be necessary to raise taxes by R15-billion. Factoring in the revenue shortfall, this means R65-billion is needed just to make this upcoming budget work, said Rossouw.
“And then you heap on top of that education and we don’t know how much for Eskom,” he said, adding that assistance to Eskom could also be in the form of further government guarantees on its debt.
The question of how to manage the growing public sector wage bill has been a thorny issue for some time. According to the treasury’s calculations, only interest payments have grown faster than compensation spending in the past eight years, and these two items have crowded out spending on other services.
In a paper published last year, former deputy director general of the treasury, Andrew Donaldson, outlined steps the government needs to take to achieve fiscal consolidation. These include the need to address personnel costs by addressing the size and structure of the public service, and control of expenditure by public entities that fall outside the ambit of the Public Service Act, such as a number of regulatory agencies, science councils and other state-owned entities.
Donaldson said the chief concern about the wage bill is the cost-of-living adjustment, which for many years it has been above inflation. But it would help to extend central decision-making on remuneration in bodies that fall outside of the PSA, many of which are entirely or largely reliant on government funds but are able to determine their own salaries.
Even in cases where there is ministerial oversight, the co-ordination of these remunerations is inadequate, with the result that many departments have non-departmental agencies associated with them that are not subject to the same remuneration controls, and over time have tended to get higher increases, Donaldson said.
The department of public service and administration did not respond to requests for comment.