Battle of salaries and ceilings puts state finances under stress
The anecdotal signs have been alarming: a month or so ago, admin employees of the Gauteng health department found themselves rudely unseated when the sheriff of the court seized their desks, chairs and office equipment; doctors in KwaZulu-Natal marched on the streets after the health department cut the number of specialists in training from 700 to 200; and teachers in KwaZuluNatal and Limpopo complained that numerous poor schools had received less than half the government funding they had been expecting.
These are signs of stress in government finances last seen back in the mid- to late ’90s. The departments most overstretched have something in common: all employ large numbers of people and salaries make up more than half of their spending.
The anecdotes are backed by the numbers. The budgets of personnel-intensive departments are on a deteriorating path.
At the end of the financial year 2016-17, provincial health and education departments carried over a bigger portion of unpaid bills into the next year than they had for many years before.
The accruals — which includes bills for expenses incurred that are still to be paid — for health departments in the Eastern Cape, Mpumalanga and KwaZulu-Natal grew 54.9%; 113.8%; and 49.5%, respectively, compared with the year before.
The Gauteng health department carried over a whopping R7bn in unpaid bills at year’s end, nearly 20% of its R40bn budget for 2017-18. With such a large chunk of its resources already allocated to goods and services used in 2016, plus a growing mountain of malpractice claims (R21.9bn) looming, it’s more likely than not that the department will run out of money by the end of this calendar year.
Education departments also held back on paying bills and in all the provinces carried over debts of R3.8bn, an increase of 22% on accruals the year before.
The budget squeeze is a consequence of two opposite and antagonistic trends: expenditure ceilings imposed on budget allocations over the past three years or so, which were deemed necessary to rein in the budget deficit and debt costs; and a public sector wage bill rising faster than inflation. The result was an accident waiting to happen: wages consume a growing portion of the budget and personnel-intensive departments are squeezed ever more tightly.
In health, personnel costs 10 years ago consumed 57.2% of the budget; in 2016, this share rose to 63.4%.
Defence had its personnel budget slashed by billions in February, stalling the recruitment of new personnel. The result is a defence force that is increasingly expensive to pay but increasingly too old for active service.
The squeeze has forced some rationalisation of employee numbers and over the past two years, the growing public workforce has begun to decline slightly.
But freezing the recruitment of soldiers and police in an economic environment of stagnant growth and falling private sector employment is not a desirable policy to pursue and will be bad for future social stability.
FREEZING THE RECRUITMENT OF SOLDIERS AND POLICE IS NOT A DESIRABLE POLICY AND WILL BE BAD FOR FUTURE SOCIAL STABILITY
All of this underlines the need for a carefully considered approach to the wage settlement for the next three-year period, beginning in April 2018.
The last round of wage negotiations was disastrous. While the budget projections allowed only for a consumer price index (CPI) increase, the Department of Public Service and Administration settled in the end for about CPI plus 2% after allowances were taken into account.
This time round, SA has a new minister of public service and administration. However, Faith Muthambi is not known for either her grasp of numbers or for financial prudence.
As minister, she employed several family members in her department and flew a dozen others to Cape Town at government expense to watch her deliver her budget vote.
Muthambi’s spokesman recently said she had been misquoted when asked by a parliamentary committee to explain.
While it was reported that Muthambi said “nine” family members were employed by her department, she had in fact said there were “none”.
The wage negotiations that lie ahead are therefore more than a little troubling.
Muthambi will need to clear up her number trouble quickly and make sure that when she signs the next three-year agreement, she is not so wildly misquoted.