No new cash for public sector deal
• Treasury outlines measures • Extra R37.4bn needed
Treasury has made it clear that government departments will have to find the money to pay the extra R37.4bn needed to fund the latest public service pay deal by shedding jobs, cutting programmes and tackling exorbitant pay increases in public entities that receive public funds.
In a statement on Friday evening after unions representing public sector workers signed a two-year pay deal with the government that will give them a 7.5% increase this year, the Treasury said it will not increase government borrowing to fund unbudgeted wage increases.
It outlined a series of measures that would be “aggressively” pursued to prevent this, including restrictions on hiring and “headcount attrition”. It will not allow departments to delay projects and programmes already budgeted for to pay for higher wage costs.
The two-year wage settlement provides for a 7.5% increase for the first year, which started on April 1, followed by an increase in line with consumer price inflation for the second year. In practice, however, the first year’s increase is just 3.3% because it wraps in the twoyear-old R1,000 monthly cash gratuity, which the government had intended would fall away once a new wage settlement was signed.
The agreed increase is still much higher than the 1.6% for 2023/24 that finance minister Enoch Godongwana pencilled into his February budget.
He said he did not want to pre-empt the outcome of the pay talks but warned that unbudgeted increases would require “very significant tradeoffs in government spending because the wage bill is a significant cost driver”.
The government has pushed back against union demands over the past three years in an effort to put an end to more than a decade of above-inflation wage settlements, which have driven the public sector payroll up to unsustainable levels. And February’s budget committed to keeping the lid on public spending over the medium term to stabilise the debt level.
TRADE-OFFS
The Treasury said that government would initiate processes to ensure that the latest wage agreement was implemented through significant trade-offs in the short term and over the medium term.
As much as possible of the increase would be contained within the ceiling in the budget by restricting recruitment of non-critical posts, so that headcount attrition would cushion the blow of the wage agreement. Recruitment would also be restricted in other areas.
Treasury also pointed to “rationalisation measures” and pay curbs not just in the government but in SA’s more than 180 public entities. It is particularly targeting exorbitant pay packages in public entities that rely on transfers from the government and don’t raise much of their own revenue.
Sanlam Investments economist Arthur Kamp said at the weekend that the Treasury had little choice but to offset as much as possible of the wage increase to ensure it did not add to the deficit. Its approach was the right one, but ultimately fiscal consolidation would not succeed unless SA could lift its growth rate.
Friday’s wage agreement, which Business Day has seen, was signed by public service & administration director-general Yoliswa Makhasi and leaders of the Health & Other Services Personnel Trade Union of SA, National Professional Teaching Organisation of SA, the Public Servants Association and SA Democratic Teachers Union.
The four unions combined represent more than 53% of the estimated 1.3-million public servants in the country.
Department of public service & administration spokesperson Moses Mushi said the 7.5% increase was effectively the
The SA Revenue Service (Sars) and the Treasury announce provisional figures for tax collected in 2022/23 on Monday. According to the Treasury’s 2023 Budget Review published last month collections are expected to top the 2022 budget figure by about R93.7bn and be about R10.3bn higher than the medium-term budget policy statement figure as higher commodity prices boosted mining tax revenue.
This revenue accounts for almost 30% of provisional corporate tax collections in 2022/23, much higher than its average share before 2020/21.
“Though the extended period of elevated prices has led to revenue surpluses over the last two years, these are expected to be temporary and the current tax revenue outlook assumes that these prices will gradually decline,” Treasury said in March.
Sars commissioner Edward Kieswetter will present the latest numbers to the media with finance minister Enoch Godongwana in attendance.
A tax overrun will not solve SA’s problems, economist Roelof Botha pointed out recently in the latest Afrimat construction index in relation to the local building and construction sectors.
Dysfunctional municipalities, often insolvent, seem unable to spend the money assigned to maintaining or upgrading public infrastructure as they are plagued by maladministration and corruption, incompetent and unqualified staff, and cadre deployment.
Botha told Business Day that failing municipalities also affect individuals and companies which struggle to get approval for construction projects from incompetent public officials.
Also on Monday, Absa’s purchasing managers’ index (PMI), measured by the Bureau for Economic Research in partnership with the bank, for February will be published.
The index, which provides insight into the manufacturing and services sectors, fell from 53 in January to 48.8 in February partly because of power outages.
Investec is forecasting a slight uptick to 49.2. The bank’s economist, Lara Hodes, said the slump in domestic activity and new orders can probably be attributed to “lacklustre local demand, with confidence and investment potential dragged down by the country’s challenges, notably the severe electricity crisis”.
This was echoed by FNB’s economists who said: “Despite improved global dynamics supporting export sales, the PMI results suggested that worsening domestic electricity shortages are having a more pronounced affect on the manufacturing sector.”
On Monday, the National Association of Automobile Manufacturers of SA will publish latest vehicle sales data. New vehicle sales improved 2.6% from a year earlier in February as the motor industry sold 45,352 cars and commercial vehicles compared with 44,224 in February 2022.
At the end of March, the aggregate sales for 2023 stood at 89,434 units, 4.3% higher than in the first two months of 2022.
Vehicle sales are an important economic indicator as they reflect consumer confidence with buying bigticket items a luxury consumers would not undertake if they were wary. “However, a weaker exchange rate and rising new vehicles inflation, a more cumbersome cost of borrowing, as well as the broader economic weakness, should weigh heavily on vehicle sales,” said FNB economists.
The JPMorgan Global Composite PMI, compiled by S&P Global, for SA for March, will be released on Wednesday. This index — which tracks business trends across the private sector, including mining, manufacturing, services, construction and retail — fell to a 13-month low of 48.7 in January, but returned to growth territory in February at 50.5. Trading Economics forecasts a 50.6 reading for March. Readings above 50 indicate growth in activity and those below the midpoint imply a contraction. The index comprises variables such as new orders, output, employment, supplier delivery times, inventories and prices.
“Firms often noted that loadshedding and weak economic conditions had continued to harm sales. On the positive side, firms benefited from a solid increase in new export orders, which was the strongest since December 2011,” S&P Global said in March.
On Thursday, Stats SA will publish the electricity generated and available for February. Electricity generated fell 8% and consumption 7.3% year on year in January.