Paying off public servants ‘bad for SA’
• Wage offer sweetened to 7.5% • Harder for the Treasury to achieve fiscal sustainability
The government has raised its wage offer to the country’s more than 1.3-million public servants to 7.5%, the second offer in as many weeks, threatening to undermine the credibility of the budget tabled in February.
The sweetened offer makes it more difficult for the Treasury to achieve planned fiscal sustainability as it pencilled in an average annual growth rate of 1.6% in government employee salaries for 2023/2024, an estimate that means the wage bill would overshoot R700bn.
The wage bill has been flagged by ratings agencies and economists as one of the biggest threats to SA’s credit outlook, already blighted by slow economic growth worsened by prolonged power cuts.
The government’s sudden about-turn, after it risked the ire of unions when it reneged on implementing the last part of a multiterm pay deal in 2020 and unilaterally implemented a 3% offer in 2022, is seen as an attempt to woo the unions back into the fold to secure their support for the ANC in the 2024 general election. Local polls, including one from the ANC itself, point to a fall in the party’s support to below 50%.
Labour analyst and DA MP Michael Bagraim described the revised offer as the government playing politics with the unions. The government “doesn’t have the money. This is politics playing out. The day after the 2024 elections the government will say, ‘we can’t afford to pay you anymore,’” Bagraim said.
“This is very sad. They are selling out the citizens of SA because they can’t afford to lose the union vote. They will scrape that money for the 7.5% increase from the departments of police, health, labour and we won’t get service delivery anymore. It’ sa tragedy,” Bagraim said.
The government previously adopted a tough stance against labour’s demands for higher wages, saying it did not have the money.
In 2020, the employer refused to implement the last leg of a three-year wage deal signed in the bargaining council and in 2022, it unilaterally implemented a 3% wage deal.
The government revised its offer from 4.7% to 7% in February.
When the unions rejected the offer, the employer tabled a two-year offer for increases of 7.5% in the first year and of projected consumer price index (CPI) in the last year. The latest offer casts doubt on the government’s commitment to restrict growth in the R665bn public sector wage bill, which eats up more than one-third of government spending.
When asked how much it would cost to implement the 7.5% offer, the Treasury said: “Wage negotiations are still
ongoing. Therefore, it will be premature to comment.”
The 7.5% offer is not far from an 8% demand from union leaders representing teachers, nurses and other public servants who initially demanded a 10% pay hike.
North-West University Business School economics professor Raymond Parsons said: “On the face of it, this [7.5% offer] is not good news for the credibility of the recent February budget, with its message of the key need to keep the outcome of public sector wage negotiations within certain tight limits.
“Among the risks to the fiscal outlook then outlined, the budget included a firm warning that a public service wage agreement that exceeded the rate of growth of the compensation budget would require steps to contain overall compensation spending through stricter headcount management.”
Unless the 7.5% increase now offered is instead found elsewhere in the budget, “the wage concession will make it more difficult to achieve the planned fiscal sustainability, by narrowing the budget deficit and stabilising debt in the period ahead”.
He continued: “The latest report of the IMF on SA emphasises the continued vulnerability of the country’s public finances. It is also a development which the credit ratings agencies will place under a microscope in their next review of SA’s economy, as it does put a serious question mark over the budget’s original targets.
“The danger is that instead of reducing fiscal risks, as intended in the budget, the larger-thananticipated public sector wage bill will do the opposite.
“The optics do not look good and the financing of the enlarged wage bill will need explanation. The monetary policy committee of the [Reserve Bank] may have to weigh the possible deterioration in the fiscus at its meeting next week, apart from taking the latest developments in the CPI and inflationary expectations into account, in deciding to increase interest rates further.”
SPENDING
Speaking to Business Day from London, Wits School of Economics senior lecturer Lumkile Mondi said the 7.5% offer meant the government would reprioritise its spending. “Probably, they will take some money from Peter to pay Paul. Anything else will basically lead to an erosion of credibility for Treasury, where Treasury might appear to be doing budget and numbers and not sticking to its commitments to fiscal consolidation,” Mondi said.
“Some departments are going to be hurt big time. At political level, this offer is an indication that there seems to be no harmony in cabinet as to how SA can return to investment grade, and why it’s important for SA to reduce debt and build a war chest for infrastructure.”
At a media briefing in Johannesburg on Wednesday, leaders from the SA Democratic Teachers Union (Sadtu), the National Professional Teaching Organisation of SA, the Public Servants Association and the Federation of Unions of SA said the unions were in a mandate-seeking process to hear their members’ views on the latest offer.
Sadtu general secretary Mugwena Maluleke said: “We urge our members to engage in the mandate-seeking process ... so we can secure what we have gained so far.”
Maluleke said they would know the outcome by Friday when labour will return to the bargaining council. to respond to the employer’s latest offer.
In February, the government offered a three-year wage deal for increases of 4.7% followed by CPI plus 0.5% and CPI in the outer years of the deal, which the unions rejected. The unions initially demanded a one-year wage deal for a 10% increase, citing the rising cost of living, led by steep increases in food, fuel, transport and electricity costs.