Fitch doubts three-year public sector pay freeze

As parties in the Public Service Co-ordinating Bargaining Council (PSCBC) keep looking for ways of breaking the wage deadlock, Fitch Ratings said on Tuesday the government is unlikely to meet its goal of freezing public-sector salaries for three years.

The wage bill has risen exponentially over the years, from R154bn in 2006/2007 to R518bn in 2018/2019 and about R630bn in the past financial year.

The government’s proposed reductions to the wage bill, as highlighted in the 2021 Budget Review, amount to R303.4bn from 2020/2021 to 2023/2024. The proposed reductions consist of the R160.2bn announced in the 2020 budget and an additional R144.2bn in the medium term. The wage bill will account for R1.97-trillion, or 32%, of consolidated government expenditure in the medium term.

In December, the labour appeal court upheld a Treasury decision not to implement the final part of a three-year publicsector wage deal, at a cost of R38bn, for lack of money.

The unions appealed and the case is scheduled to be heard by the Constitutional Court on August 24.

On Tuesday, Fitch said SA is at risk of spending overruns as the government is unlikely to meet its goal of freezing public servants’ pay for three years.

“Compensation of publicsector workers accounts for a large share (about 35%) of government expenditure. Ongoing negotiations on a new wage deal are likely be difficult and the government is unlikely to meet its target of agreeing on a wage freeze, leading to the risk of expenditure overruns,” Fitch said.

The ratings agency, which downgraded SA further to junk status in November, said payroll and state-owned entity reforms will be crucial for fiscal consolidation. It said GDP growth is likely to remain below 2% due to the limited scale of planned structural reform, the government’s weak implementation record, electricity shortages and strained public finances.

In March, Fitch revised its economic outlook for SA, saying the country’s economy will expand 4.3% in 2021, up from a previous estimate of 3.6%.

Wage negotiations at the PSCBC, where the employer and unions agree on salary increases and other conditions of employment, reached a deadlock on April 23 after union federation Cosatu and the Public Servants Association of SA (PSA) — which represent most of the 1.3-million public servants —

rejected the government’s zero cost-of-living adjustment for 2021/2022.

The unions are demanding a wage increase of the consumer price index (CPI) plus 4% across the board for 2021/2022 —

above the 3.2% inflation rate recorded in March and also higher than the 4.3% average the Reserve Bank expects for 2021.

After the parties hit a deadlock during wage negotiations at the bargaining council on April 23, they agreed to embark on facilitated negotiations. PSA assistant GM Reuben Maleka told Business Day: “The PSA declared a dispute [on Tuesday] after three days of facilitation that failed [to yield results].

“The PSCBC has 30 days to resolve the dispute, failing which a certificate of nonresolution will be issued.

“We will then issue a sevenday notice to the government [notifying it of our intention] to start the strike action.”

When asked for comment, Mugwena Maluleke, chief negotiator for Cosatu’s public-sector unions, said: “We are still in a facilitation process.” The PSA is within its rights to declare a dispute, said Maluleke.

Kamogelo Mogotsi, spokesperson for public service & administration minister Senzo Mchunu, did not respond to a request for comment.