Public wage bill is impeding SA’s growth prospects — Busa

Business Unity South Africa (Busa) says that if the public wage bill is not immediately dealt with, the country will face a fiscal debt crisis in the next three years or sooner. 

On Monday at a virtual media briefing, the organisation revealed the findings of its report on the country’s public wage bill. Busa commissioned Intellidex, a local capital markets and financial services research company, to conduct the assessment. 

The research found that spending on wages has ballooned from R154-billion in 2006-7 to R518-billion in 2018-19, a 78% inflation-adjusted increase. The result is a real increase in average remuneration of 44% during that period, or 3.1% a year.

The wage increases from 2006 to 2019 have surpassed the rate of economic growth and productivity. 

Unions have previously called for higher earners’ salaries, such as those of ministers, to be cut. But the assessment has shown that increases in remuneration have been the fastest for employees on the lowest salary levels and slower for top earners. 

“The fastest-growing income band consists of staff earning above an inflation-adjusted monthly salary of R30 000, the number of whom has increased more than fivefold in 12 years,” the report said.

Busa vice-president Martin Kingston said that the country is running out of money and time and, if the wage matter is not dealt with, the country will find itself in a financial crisis. 

The research was conducted before last month’s medium-term budget policy statement delivered by finance minister Tito Mboweni, which suggested that wages should be cut.

Mboweni proposed that public-service wage increases be frozen for the next three years. This is also in line with the government’s plans to stabilise its debt. 

According to the treasury’s estimates, such cuts would result in a decrease of the budget deficit from 14.6% of gross domestic product (GDP) in 2020-21, to 7.3% by 2023-24.
If the cuts are effected, they are projected to stabilise the gross national debt at 95.3% of GDP by 2025-26. The reduction of the wage will contribute to the cutting of non-interest spending, which could save the fiscus R300-billion. 

In June, the government projected that gross national debt would rise to 80.5% of GDP this fiscal year, and could exceed 100% by 2025 if no ste

The reduction of the wage will contribute to the cutting of non-interest spending, which could save the fiscus R300-billion. 

The report also found that payroll costs in the country are larger than the global norm as a percentage of GDP, public spending or tax revenues. 

Public-sector wage increases as a percentage of tax revenues have “grown from 31% before the global financial crisis to 41% in 2009-10, in the face of the global slowdown, and has stabilised to around 37%. The percentage exceeds 50% of revenues this year and will be 47% next year and 45% in 2022-23”, the report stated. 

It also showed that the country’s public service is not large in per capita terms, but that public servants are unusually well remunerated. Busa chief executive Cas Coovadia said there is no “optimal” size for public service. 

“South Africa probably needs one that is reasonably large because of the socioeconomic issues we need to address,” Coovadia said. 

In addition to this, the country’s wages are higher than the average of 46 countries surveyed by the International Monetary Fund (IMF), such as Bangladesh, Norway and Denmark. The survey also included more countries from Europe, as well as other countries in Africa and South America.

Coovadia said that the unions are not yet on board regarding the proposed wage cuts, but this is the issue of critical importance that the social partners at the National Economic Development and Labour Council (Nedlac) need to engage in. 

Union federation Cosatu has previously said that it will not allow broad cuts. But Coovadia says that when talks begin, there will be trade-offs, which could include first cutting wages for the highest-paid positions, and in departments that are less productive. 

Coovadia said proposals to cut the wage bill have to be welcomed “or else we need to ask how it’s going to be funded”. 

He added that South Africa is in a situation in which these hard decisions have to be taken. Coovadia said asking for money from the likes of the IMF will not help, because such institutions will tell the government to cut spending. 

Busa board member Busi Mavuso said that if the issue is not dealt with, “We are well on our way to being another failed African state”.

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Tshegofatso Mathe
Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian.

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