/ 26 February 2020

Budget 2020 — Tito squares up to unions with wage cuts

Finance Minister Tito Mboweni
Umbrage: Finance Minister Tito Mboweni has taken the battle with Sakeliga to the constitutional court

South Africa’s growth prospects remain timid as Eskom’s load shedding continues to constrain the economy. Government spending has also continued to surpass revenue, a trajectory that the minister of finance, Tito Mboweni, is trying to curb in this year’s budget.  

In delivering his budget speech, Mboweni forecast that gross domestic product (GDP) will grow by 0.9% and inflation will average 4.5% in 2020.

This will be well beyond the 2019 GDP forecast of just 0.3% growth in 2019, down from 0.8% in 2018. The slow growth has been partly attributed to interrupted electricity supplies, with Eskom struggling to keep its power plants functional and do crucial maintenance.  

To service the plants, Eskom has started implementing rotational load shedding, with chief executive André de Ruyter saying that this will be done over the next 12 months.  

But while the national power utility is trying to get its house in order, the economy has suffered.

The lacklustre economic environment has led the national treasury to forecast economic growth of 0.9% in 2020, 1.3% in 2021 and 1.6% in 2022. 

This is higher than the South African Reserve Bank’s (SARB) projections of 0.4% for 2019 and 1.2% for 2020.

Despite this, South Africa’s spending is continuing to increase, resulting in a budget deficit estimated at 6.3% in 2019/20.

“A key driver of the widening deficit has been a sharp decline in nominal GDP since 2018/19 and [the drop in] associated tax revenues,” Treasury documents — released as part of the budget speech — said.

But in his budget, Mboweni proposed to reduce public spending and improve how money is used by reducing growth of the public wage bill.

In a pre-budget meeting, the minister said everybody needs to realise that spending measures need to be put in place in order to turn the country’s finances around. “We cannot have all things we want at the same time.” 

One of the key ways to decrease spending is by reducing the public wage bill which accounts for 35% of the consolidated budget. Mboweni plans to save R37.8  billion in the next financial year. 

Treasury’s documents said that they believe in fairly compensating workers, but “is obligated to balance compensation demands with broader needs of society as reflected in the budget”.

Cutting this wage bill is expected to narrow South Africa’s budget deficit from 6.8% in 2020/21 to 5.7% of GDP in 2022/23.

Mboweni said they have been engaged with stakeholders and workers regarding the reduction and so far, they believe they will meet Treasury halfway. 

In the pre-budget meeting, deputy finance minister David Masondo said the huge public wage bill has had repercussions on the government providing public service work — such as hiring police and nurses.  

He added that the cutting of the wage bill will affect all public employees. “It’s not only the workers. Even the executives will not be getting salary increase. If we do not handle it collectively, the implications will be upon all of us.”

This proposal has already angered public sector unions, including the Police and Prisons Civil Rights Union (Popcru) and trade union federation Cosatu. 

Popcru’s Richard Mamabolo described the slashing of the wage bill as a “direct attack” on workers. In a statement, he warned: “If the Minister of Finance dares freeze public service wages in his address later today, we and other affiliates will be left with no choice but to take protest action.” 

Finance Minister Mobweni said that, even though revenue has come down, basic pressure on expenditure remains because the government has spent on things such as education infrastructure and health.

Therefore, the total consolidated spending amounts to R1.84 trillion in the current year, rising to R2.14 trillion by 2022/23.

The largest spending areas are in education (R396-billion), health (R230-billion) and social development (R310-billion). 

Mboweni also announced an R80 increase for old age grants, disability and care dependency grants to R1860 per month. War veterans will receive R1880 per month, which is an increase of R80, foster care grant will be R1040 per month and the child support grant will increase by R20 to R445 per month.

Overall, the Treasury is aiming to cut spending by R262-billion. This will be done by adjusting budgets across departments. 

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian