/ 3 April 2023

Treasury: Brace for trade-offs after public sector wage deal

Medium Budget 2022
South Africa’s treasury is guilty of bad budgeting, and its budgets are criminally incongruous with the vision, policy objectives and goals of the 2012 National Development Plan. (David Harrison/M&G)

The treasury has warned of significant trade-offs in the wake of the recently-inked public sector wage deal.

In a statement released last Friday, the treasury responded to the news that the majority of the trade unions in the public service co-ordinating bargaining council (PSCBC) had signed a multi-term wage agreement for the 2023-24 and 2024-25 financial years. 

The treasury claims the deal encompasses a 7.5% hike, although this amount conflates the current non-pensionable cash gratuity (at the value of 4.2% on the baseline, according to the PSCBC) and a nominal 3.3% wage increase. Unions that have rejected the deal say the actual increase amounts only to 2.8%.

The agreement means that the treasury’s budget baseline has increased by R37.4-billion in 2023-24.

“The 2023 budget did not pre-empt the outcome of the wage negotiations. In this regard, the outcome of the wage bill negotiations was identified as one of the key risks to the fiscal outlook presented in the budget. This risk has now materialised,” the treasury said in the statement.

It reiterated its intention to rein in the spending and to stabilise government debt, which ratings agencies have flagged as priorities for South Africa as the country attempts to claw back investment grade.

“Therefore, government will initiate processes to ensure that the latest wage agreement is implemented through significant trade-offs in the short-term and over the medium-term.

Moreover, the national treasury reiterates the position that government borrowings will not be increased for the purposes of consumption expenditure, including paying for wages,” the statement noted.

“Fiscal policy will remain focused on reducing fiscal risks and supporting measures to grow the economy. This will ensure that the overall fiscal path as outlined in the budget is maintained.”

Trade-offs include restricting previously-planned recruitment as well as recruitment of non-critical posts, delaying projects funded in the budget and allowing departments to shift funds towards the increased compensation costs, implementing rationalisation measures and reducing out-of-line remuneration in public entities. 

To achieve the latter, the treasury is concluding a process to identify public entities that receive transfers from government “where remuneration policies promote exorbitant or overly-generous pay packages, particularly for entities that do not raise significant own revenue”.

These measures, the treasury said, will be pursued aggressively during the current financial year.