Public sector wages on the rise

R140BN A YEAR: UP TO 70% OF SOME PROVINCES’ HEALTH BUDGETS WENT TO SALARIES

The bill, as a percentage of government spending, is one of the highest in world and is creeping steadily higher, says economist.

South Africa’s public sector wage bill now swallows nearly 35% of the budget and 14% of GDP. This is way out of line with other emerging economies and extreme by virtually any measure – including developed economies.

The country’s roughly 2.7 million public sector workers and government appear to be finding a middle ground in wage negotiations, suggesting 2018 wage increases are likely to be around consumer inflation plus 1% to 3%.

This may seem trifling, but not with a wage bill of around R140 billion a year. An increase of inflation plus 1% over three years translates into a R12 billion shortfall by 2021 at national level, and around R13 billion at provincial level.

Treasury’s 2017 mini budget showed public sector wages increased 10.3% a year since 2009, considerably above inflation. Further, up to 70% of some provinces’ health budgets went to wages.

Economists and ratings agencies have warned about the ballooning public sector wage bill for years. Government is trying to shave the headcount by leaving noncritical vacancies in some departments unfilled, but this isn’t enough.

Last year, Mike Schussler at Economists. co.za, warned that South Africa could no longer afford a bloated civil service and the only way out was a massive private sector job creation drive. But that would require government abandoning policies that stand in the way of investment and job growth.

A key figure to be monitored in the budget on February 21 is the allocation to public sector wages. Cannon Asset Managers’ Adrian Saville argues that the government wage bill is already unsustainable and any hike will only exacerbate this.

“Whether we are being compared to similar-sized economies, emerging markets, or even advanced economies that tend to have high levels of current spending, the wage bill as a percentage of government spending is one of the highest in the world and is creeping steadily higher.”

Though wages are being spent in the right sectors, for example public education and national healthcare, the results being achieved are dismal. Saville adds there’s no governance or accountability regarding spend. “This perpetuates a system in which spending continues to rise without regard for impact or effectiveness. These wage demands come at a particularly difficult time for the fiscus.”

Another development to be keenly studied in the budget is government’s promise of free tertiary education, which could add another R50 billion to the budget, alongside the revenue shortfall of R50 billion.

Demographic, Employment, and Wage trends in South Africa, a United Nations University World Institute for Development Economics Research study, claims that unionised public sector workers have become the new labour elite. Nearly 70% of public sector workers are unionised, which helps explain how they were able to achieve a 22% premium over private sector workers at the wage negotiating table.

The only long-term approach to stem the growth in the public sector is to implement policies that promote job creation.