Government in move to trim public service
Early retirement, voluntary retrenchment to be encouraged Thousands of jobs must go
Thousands of public sector workers over the age of 60 will be offered voluntary retrenchment as part of an effort by the government to cut its salary bill.
The decision to offer voluntary severance packages — the first such offer in 20 years — follows the conclusion of a new three-year wage agreement last week that bust the budget by about R30bn.
The consequence of this, said the Department of Public Service and Administration in a statement, was that measures to contain costs had to be taken. These would include: encouraging early retirement by topping up pension funds for those who take the package; reviewing the government’s performance management and incentive systems; and more effective management of allowances.
The department said on Wednesday that it was too early to say how many jobs would be affected. It can be assumed though that if the savings target is R30bn over the next three years, the government would need to cut salaries by R10bn a year. This would imply scaling down thousands of jobs. The department and the Treasury are crunching the numbers to calculate what it entails.
The Treasury had made provision for R110bn for improvements to salaries and conditions of service. To keep within the “expenditure ceiling” — which is a necessary part of SA’s pledge to the public, investors and credit rating agencies to improve the health of public finances — the Treasury needed an agreement that allowed for no more than a consumer price index (CPI) increase.
The final agreement, which came into effect last week after a majority of unions signed, included CPI plus 1.5% for the lowest paid, CPI plus 1% for the middle strata and CPI plus 0.5% for the highest paid in the first year. The increases drop 0.5% in the second and third years.
The inclusion of other elements in the agreement – such
as the commitment that where spouses are public servants, both would qualify for a housing allowance — and improvements to the annual notch increases, also played a significant role in busting the expenditure ceiling for compensation.
The cost-containment plan will, however, come at a cost as the government will need to pay upfront to top up pensions to the level they would have reached at retirement age.
Ian Stuart, acting head of the budget office in the Treasury, said reducing the headcount through interventions such as voluntary severance packages and early retirement “makes sense”. “It is about paying up front to reduce the impact of wage costs in later years. There is no way we can stick to what we had committed [in the budget] unless there is a reasonable plan to deal with the pressures in the future. There are still a series of very difficult decisions that have to be taken.”
The government has been under pressure to rebalance public finances as a greater portion of government expenditure has been consumed by wages over the past decade.
This has put pressure on the funding of goods and services budgets, such as medicine, as well as infrastructure spending needed for investment.
The R30bn shortfall on salaries comes on top of other growing spending pressures. Stuart said these included the finances of several state-owned companies, as well as pressure building in the system as departments increasingly deferred paying invoices, pushing expenditure into the new budget year.
There is also an uncertain growth outlook following poor growth numbers in the first quarter of 2018 and the growing risk of rand depreciation.
A proposal for voluntary retrenchment was tabled by the government in earlier rounds of the wage talks, but removed after objections by trade unions.
Mugwena Maluleke, the convenor of the Cosatu public sector unions, said it was inappropriate for the government to introduce the subject in the midst of negotiations as it looked like an attempt to shut down the unions.
The unions would not give their blessing to a process that reduced jobs in the context of an unemployment crisis, he said.