Public sector pay, tax and virtuous or vicious circles

The sabre-rattling by public service unions over wage talks comes as the government, after almost a decade of corruption, is trying to fix the mess we are in, including at state-owned enterprises, which should facilitate growth, not put it at risk.

It’s understandable that government employees want more pay, given the troubles they go through each day at work. They are at the frontline of delivering government services, such as teaching classes of 40 children or more with few resources in dilapidated schools, putting their lives at risk while trying to curb crime or having to deal with ill citizens without the means to provide consistently good care.

While the government says public servants are generally better paid than most taxpayers, with an expanded unemployment rate of 36.3% it is likely that state staff — like most employed South Africans — support at least one unemployed family member.

But it’s not that simple. It never is. The rate of increase in the public sector wage bill, along with lower tax revenue, has left a smaller pie for much-needed infrastructure and supplies so nurses and teachers, for example, can do their jobs properly.

The Organisation for Economic Cooperation and Development says South Africa’s government wage bill is one of the highest among its developing-country peers. South Africa’s consolidated wage bill has risen from 32.9% of spending in 2007-08 to about 35% in 2017-18, according to the 2018 budget review released in February. The government has already cut spending on salaries, but, as current wage talks with public sector unions are at risk of a deadlock, a strike is a possibility, and the government may not then stick to its compensation target.

Of course, that the government now has less money for spending, and the troubles it faces at the likes of Eskom, are not only due to a rising wage bill. Weak growth, maladministration and corruption have left the government in a tight corner.

The budget review put it plainly: “Large parts of the public-sector balance sheet have been exhausted. National debt is approaching R2.5-trillion. The debts of state-owned companies have also increased rapidly. Several of these companies have large government guarantees and their long-term viability is a concern.

“Capital markets have reduced lending to some entities in the absence of meaningful reforms. Eskom’s financial position is now a major risk to the economy and the public finances,” reads the review.

If government finances are stabilised (achieved in part by curbing spending on salaries), it will go some way towards bolstering confidence, and, with more confidence, the private sector is likely to invest and employ more people.

This could create a virtuous circle that will increase tax revenues, providing greater scope for the government to invest in schools, roads, water and clinics, and supply efficient and quality services for citizens.

Sound too good to be true? Perhaps.

Government staff want more pay for the troubles they face at work