AT THE TROUGH

Financial Mail - - COVER STORY -

The big­gest wild card af­fect­ing SA’S fis­cal sus­tain­abil­ity — apart from what hap­pens at Eskom — is whether gov­ern­ment will suc­ceed in ne­go­ti­at­ing an af­ford­able pub­lic-sec­tor wage deal in 2018.

The medium-term bud­get al­lows for the wage bill to rise by 7.2%/year on av­er­age over the next three years and to sta­bilise as a share of gov­ern­ment ex­pen­di­ture. Any­thing more gen­er­ous will put ex­treme pres­sure on the coun­try’s fi­nances.

As a warn­ing shot, fi­nance min­is­ter

Malusi Gi­gaba has pro­vided de­tailed fig­ures on pub­lic-sec­tor em­ploy­ment trends over the past decade, re­veal­ing how the public­sec­tor wage bill has over­whelmed other as­pects of spend­ing, and how the up­ward drift in the dis­tri­bu­tion of em­ploy­ees has, over time, sig­nif­i­cantly raised the av­er­age level of real re­mu­ner­a­tion. Pub­lic ser­vants are now bet­ter paid than the me­dian tax­payer at ev­ery point of in­come dis­tri­bu­tion, bar those in the 95th per­centile (see graph). Michael Sachs, who heads the bud­get of­fice, says the in­for­ma­tion is be­ing dis­closed ahead of the wage talks to in­form the de­bate. But as the two par­ties gear up for the cru­cial talks, there is no sign that work­ers are aware that SA is in a fis­cal cri­sis.

The unions want a gen­eral salary in­crease of 10%12%, against trea­sury’s pro­jec­tion that CPI will av­er­age 5.4% over the next three years. Trea­sury is des­per­ate to avoid a re­peat of the three-year deal struck in 2015. It cost R64bn more than what was bud­geted for and wiped out most of SA’S three-year con­tin­gency re­serve. It proved what South Africans had al­ways sus­pected — trea­sury is pow­er­less to en­force wage re­straint on the rest of gov­ern­ment.

Trea­sury had ar­gued against grant­ing the in­crease but it had to abide by the over­rid­ing cabi­net de­ci­sion. Labour, on the other hand, stood firm on its de­mands and in the end gov­ern­ment backed down for fear of caus­ing strikes and protests.

“It’s sup­posed to be a process of give and take but the way it hap­pens, the state gives and unions take,” Sachs told the Fi­nan­cial Mail at the time. “There is no rec­i­proc­ity in terms of link­ing pay rises to per­for­mance.”

Trea­sury data shows the num­ber of civil ser­vants ex­ploded from 1.13m in 2006/2007 to peak at 1.33m in 2012/2013. This has since de­clined to 1.3m but re­mu­ner­a­tion per em­ployee has con­tin­ued to rise steadily.

Since 2008/2009, the wage bill has grown by 37% in real terms — or about 4%/year af­ter in­fla­tion. Only about a quar­ter of this in­crease is as a re­sult of ex­panded em­ploy­ment: the rest is a re­sult of award­ing higher wages to ex­ist­ing work­ers.

In nom­i­nal terms, the wage bill has grown faster than nom­i­nal GDP growth as well as all other ar­eas of ex­pen­di­ture, bar in­ter­est pay­ments. This has meant that growth in spend­ing on cap­i­tal, goods and ser­vices and trans­fer pay­ments has had to be much slower. In other words, the wage bill is in­creas­ingly crowd­ing out spend­ing on other things, es­pe­cially in labour-in­ten­sive de­part­ments like de­fence, health, jus­tice and the po­lice.

In Lim­popo, for ex­am­ple, com­pen­sa­tion ac­counts for 71% of the health bud­get, up from 58.9% in 2008/2009.

The up­shot is that com­pen­sa­tion ex­pen­di­ture has ab­sorbed an ever larger share of to­tal spend­ing over time, ac­count­ing for 35.3% now, up from 32.9% in 2008/2009.

In ad­di­tion to above-in­fla­tion wage in­creases, trea­sury at­tributes the strong rise in re­mu­ner­a­tion to the in­tro­duc­tion of oc­cu­pa­tion-spe­cific dis­pen­sa­tions which boosted the wages and con­di­tions of ser­vice of many, in­clud­ing teach­ers, nurses and po­lice of­fi­cers.

Pro­mo­tions and salary pro­gres­sions (which should be per­for­mance-linked in­cen­tives but have in many sec­tors be­come au­to­matic) have fur­ther in­creased the wage bill while en­sur­ing an up­ward drift in the dis­tri­bu­tion of per­son­nel across pay scales. For in­stance, the pro­por­tion of pub­lic ser­vants earn­ing above R20,000/month has climbed from 17% in 2008/2009 to 37% to­day while the av­er­age an­nual salary (in real 2016 rand) has climbed from R260,000 to R338,000 over the same pe­riod.

“There is no al­ter­na­tive to dis­ci­plin­ing gov­ern­ment ex­pen­di­ture if SA is to avoid a tra­jec­tory of con­tin­u­ously ris­ing gov­ern­ment debt and debt-ser­vic­ing costs,” says San­lam eco­nomic ad­viser Jac Laub­scher. “As dif­fi­cult as it may be, the pub­lic-sec­tor wage bill will have to be re­duced.”

What it means: Pub­lic ser­vants are bet­ter paid than most other than tax­pay­ers; a tight 2018 public­sec­tor wage deal is cru­cial

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