In a grim budget delivered by Finance Minister Tito Mboweni on Wednesday, he announced concerted efforts by the state to face up to its spiralling wage bill, proposing cuts of R27-billion in the coming three years.
Rising government salaries have been a sticking point for the government. They consume more than 35% of consolidated spending and are a major contributor to the budget deficit, according to the treasury.
Mboweni described the wage bill as “unsustainable” and said the state must shift expenditure to investment.
As part of R50-billion in planned expenditure reductions, more than half — R27-billion — will come from cuts to national and provincial compensations budgets. The first step in this process, he said, would be the early retirement of public servants, which is expected to save R4.8-billion in 2019-2020, R7.5-billion in 2020-2021 and R8-billion in 2021-2022.
This total R20.3-billion saving is based on the assumption that 30 000 employees will take up the offer. According to the treasury, at the end of December, there were more 126 700 public service employees between the ages of 55 and 59.
Besides a freeze on wage increases for public office bearers such as ministers of Parliament and provincial legislatures, public entities are “encouraged” to freeze salaries of employees earning R1.5-million or more a year in 2019-2020, and those earning between R1-million and R1.5-million a year should receive a below-inflation increase of 2.8%.
The government also proposes to phase out performance bonuses in the next four years. The state is seeking to replace these, which have cost the state more than R2-billion in recent years, with other performance management measures.
Last year, a wage agreement between the state and public sector unions was expected to leave a R30-billion hole in the budget. But recent data shows that employee numbers are declining at a rate sufficient to absorb wage agreement pressures, the treasury said.
This is in part because of natural staff attrition and the tendency to employ younger people who are ranked lower — and thus earn less — than those who are leaving. The minister of public service and administration, Ayanda Dlodlo, is expected to announce more details about the proposals. Economists believe the ratings agencies will welcome the moves but the unions are up in arms, and the Public Servants’ Association (PSA) has described the steps as “a declaration of war against loyal public servants by an untrustworthy employer”.
It should appease credit ratings agency Moody’s, which is the last major agency to hold South Africa at investment grade, said Momentum Investments economist Sanisha Packirisamy. “This has been quite a big bugbear for some time now,” she said. Bringing the remuneration levels under control was key to fiscal sustainability, said Kemp Munnik, investment bank Bravura’s head of structured solutions, but he warned it would require “difficult negotiations with a key ANC support base: public servants and their trade unions”.
The PSA came out swinging after the announcements. “From these statements, the minister of finance and the minister of public service have clearly declared war on public servants,” PSA general manager Ivan Fredericks said in a statement.
Mboweni had failed to acknowledge “the real reasons for the country’s economic crisis”, namely corruption, he said. “There has not been any arrest or effort to recoup money from his comrades who have been implicated in corruption. Instead, public servants must gracefully pay the price for this by sacrificing on agreed terms and conditions of employment.”
Trade union federation Cosatu, although it welcomed the wage freeze for top office bearers, said the state could “not announce unilateral changes to performance and overtime pay, matters that are governed by law, and not engage workers [of the Public Service Co-ordinating Bargaining Council]”. This would “push workers to strike to protect their rights”.
It added that, although the state was “boasting” about declining numbers of state workers, it was not confronting the effect this had on service delivery, such as long queues at hospitals and the home affairs department, rising teacher-pupil ratios in classes and declining policing levels.
“The government needs to reduce the bloated Cabinet and executive structures and not reduce and overwork service-delivery workers,” Cosatu said.
In August, the Mail & Guardian reported on government proposals to reduce its head count by 30 000 people to cut R20-billion from its salary bill, which the state denied at the time.