/ 20 February 2018

How will Ramaphosa deal with the public sector wage fight?

'I think initially there will be knee-jerk reaction
President Cyril Ramaphosa’s economic stimulus package shows that he and his political allies are in charge of economic policy. (Delwyn Verasamy/M&G)

How the upcoming budget deals with the thorny issue of public sector wages will be an important test for president Cyril Ramaphosa’s new administration.

Salaries for civil servants have taken up an increasing share of budget expenditure over the last decade. According to last year’s medium term budget policy statement compensation of employees had grown to 35.3% of consolidated budget expenditure by the 2016/17 financial year.

Only interest payments on government debt have grown faster, restraining what the state can spend on investment, goods and services and transfer payments.

The stakes are higher for this budget, as state and public sector unions are currently in wage negotiations, with the aim to strike a deal before April this year.

The government’s strained financial position — which includes an estimated R50-billion revenue shortfall — has called into question the sustainability of continued above inflation increases for state workers.

Speaking at a recent media roundtable, Gina Schoeman, chief economist for South Africa at Citi, said reducing spending on public sector wages would not immediately resolve the state’s financial woes.

It will however provide an important political message about the continued compensation of employees, and the state’s commitment towards budget consolidation, she said.

Schoeman calculated that if public servants’ salaries had been adjusted by 6% in 2016, rather than 7,5%, the savings would be about R7.8-billion or 0.2% of GDP.

This was not an insignificant amount she added, but was it was not going to be “the saving grace” for this budget, with other expenditure cuts still needed.

“I think the more critical aspect of this is the signal it sends about the political will of the budget [and] the intention of the budget to actually consolidate,” Schoeman said.

But unions have consistently argued that cuts cannot be made to the wages of front line staff, who are critical to service delivery, particularly when fruitless, wasteful and irregular spending continues to drain state coffers.

On Monday trade federation Cosatu warned against an “austerity budget”.

The government could not increase efficiency by cuts to service delivery and “by leaving teaching, nursing and policing and other critical posts vacant”, it said in a statement.

Instead it advocated for dramatic cuts to national and provincial cabinets and a reduction in the perks to political office bearers.

“If government is serious about balancing the budget, let them cut the 78 member cabinet to 30. Let them reduce the size of provincial cabinets. Let them announce cuts on politicians’ perks,” Cosatu said.

“Let them announce the halting of providing bodyguards to all mayors and municipal speakers.”

In his state of the nation address delivered on Friday however, Ramaphosa hinted that this could become a reality.

“It is critical that the structure and size of the state is optimally suited to meet the needs of the people and ensure the most efficient allocation of public resources,” he said.

“We will therefore initiate a process to review the configuration, number and size of national government departments.”