ON THE ROPES
Local government is budgeting for big wage hikes regardless of their affordability amid the devastating impact of the pandemic
SA’s major metros intend to honour wage increases of almost double inflation for the year ahead, despite the pounding that municipal finances are taking from the Covid-19 crisis, and in defiance of a National Treasury warning that the pay hikes are unaffordable.
At the same time, metros are proposing significant increases to property rates, and water, refuse and electricity tariffs (see table), raising the ire of consumer organisations.
Organisation Undoing Tax Abuse (Outa) project manager Tim Tyrrell describes the City of Joburg’s draft 2020/2021 budget as “an affront to every hardworking resident”, given its “callous disregard” of their financial suffering during the pandemic.
He points out that the 4.9% proposed property rates increase will raise an additional R1bn, nicely covering the extra R843.5m the city will need to meet a 5.4% increase in staff-related costs and 6.4% hike in remuneration for councillors.
Last week, in a meeting joined by public sector unions, a National Treasury delegation made a last-ditch attempt to persuade the SA Local Government Association (Salga) to lodge an urgent application on behalf of all municipalities for exemption against implementing the final round of a three-year collective wage deal struck in August 2018.
In terms of the deal, municipalities agreed to raise wages and benefits by 6.25% from July 1 2020. At the time, the consumer price index
(CPI) was expected to be 5%. The Reserve Bank’s current estimate is that CPI will average 3.4% in 2020, though some economists expect it to remain below 3% until this time next year due to the Covid-related disinflationary shock.
On May 10, National Treasury director-general Dondo Mogajane wrote to Salga, as the employer body that represents municipalities, urging it not to implement the wage hikes. The municipal wage agreement was even more generous than the one signed with national and provincial employees and was “no longer affordable”, he said.
In terms of clause 11.1.13 of the agreement, municipalities may request an exemption from the SA Local Government Bargaining Council (SALGBC) to all or part of the agreement on the grounds that it is no longer affordable, or in cases of “unexpected economic hardship”.
Since February, the Treasury has been fighting through the courts and collective bargaining processes to have the final year of the national and provincial agreement set aside, in line with its intention to strip
R160bn from government’s compensation budget over the medium term.
In his letter, Mogajane warned that the Treasury is expecting a “significant deterioration” in municipal revenue collection, and that even a 5% drop will create a R14bn gap in municipal budgets.
“Already there are reports that some municipalities are struggling to meet their salary obligations,” he said, adding that the situation is likely to deteriorate further.
Salga’s own finding is that the pandemic is placing “a huge financial burden on municipalities”. In a recent presentation to parliament’s portfolio committee on cooperative governance & traditional affairs, it predicted a “drastic” drop in revenue collection over the coming year, especially from water and electricity provision — the backbone of municipal finances. This would have a knock-on effect on municipalities’ ability to meet their financial obligations.
Salga COO Lance Joel says a process of engagement with municipalities and trade unions is under way under the auspices of the SALGBC.
“Salga hopes that through this series of engagements the parties can reach consensus on revised terms of the agreement that align with the current inflation environment and outlook … and/or give effect to a collective exemption dispensation for municipalities,” he says.
In parallel, Salga is supporting a few individual municipalities to prepare exemption applications.
But with the new financial year starting on July 1 it is very late in the day for Salga and the Treasury to be trying to reverse the status quo. Cape Town and ethekwini have already passed their 2020/2021 budgets, and most other big metros are only a week or two away from finalising theirs.
Both the SA Municipal Workers’ Union (Samwu) and the Independent Municipal & Allied Trade Union have responded angrily to the Treasury’s proposals, saying they will fight any attempt to moderate the wage agreement.
In a statement, Samwu expressed “shock and disgust” at what it described as attempts by the Treasury “to collapse collective bargaining” in local government.
INFLATION-BEATING HIKES
No exemptions: The SA Municipal Workers Union has threatened war if Treasury tries to undo the 2018 multiyear wage agreement
“Blaming Covid-19 as motivation for municipalities to renege on the collective agreement is therefore nothing but an incontinent [sic] truth,” it said, ominously threatening war if the Treasury dares to touch workers’ benefits.
The umbrage of unions is, however, equally matched by that of ratepayers, 50,000 of whom have signed an Outa petition begging for property rates relief across 207 municipalities.
“It’s very convenient to say they’re locked into a three-year agreement,” says Outa’s
Tyrrell, “but it reinforces the belief that government employees are immune to the ravages of the pandemic, unlike the private sector where people are hitting the wall.”
Outa points out that Joburg has increased its
COUGHING UP
Proposed tariff increased for the major metros (2020/2021)
Metro
Cape Town Joburg Ekurhuleni
ethekwini Tshwane NMB 3.9% 4.9% 7.5%
4.9%
New Valuation Roll 8.5%
Electricity 4.8% 8.1% 6.6%
6.2% 6.2% 6.2% compensation bill by 10.6% a year on average over the past six years. The increases in 2018/2019 and 2019/2020 were “astronomically high”, at 18.56% and 20.8% respectively. Over the past decade, it has spent R92.2bn on employeerelated costs. Had it kept employee-related increases in line with CPI, it would have had an additional R21bn to spend on service delivery.
“As long as there is above-cpi pressure on the salary bill, residents can expect above-cpi increases in rates and tariffs,” Tyrrell argues.
In ethekwini, the DA proposed that the city apply for an exemption from the wage increase for officials, and voted against the increase for councillors, given the city’s deteriorating financial position. However, these proposals were rejected by all other parties in the council.
ethekwini’s water and sanitation price hikes seem particularly excessive, at 9.5% for the coming year. This exceeds the 6.9% increase in the bulk water tariff charged by the Umgeni Water Board.
However, the metro’s draft budget documents say the increase of 9.5% should come as “welcome relief” to consumers, compared with the past five years’ increases of 15%, and the
23% increase that was initially proposed to balance the budget.
At the same time, the metro expresses concern that bulk water and electricity tariff increases continue to exceed inflation. (In May, the energy regulator issued a guideline increase for municipal electricity tariffs of 6.2% for 2020/2021.)
The upshot is that residents are consuming less. Last year, ethekwini’s electricity sales revenue was down by almost R600m due to consumers’ adoption of energy-saving devices.
“This is an anomalous situation. It is not sustainable,” says the metro. “This is [affecting] our collections and the financial viability and sustainability of the municipality.”
The City of Cape Town has marked down its total budgeted revenue for 2020/2021 by R1.1bn to factor in the impact of Covid-19 on water and electricity sales, as well as property rates collection.
At the same time, its projected capital and operational expenditure budgets have been ramped up by almost R1bn each, causing the projected deficit to swell from the relatively small R623m provisionally budgeted for in March 4.5% 8.6%
15% (Water) 11% (Sanitation) 9.5%
6.6%
8%
Refuse 3.5% 5.2%
7.5% 6.4% 6% 8% to R2.5bn in the final budget.
Since all municipalities must by law produce balanced, funded budgets, Cape Town is fortunate to be able to draw down cash surpluses to grant its residents some reprieve during the Covid crisis. This is enabling it to keep increases in rates and service charges below 5% for the coming year — much lower than some metros.
However, in 2021/2022 Cape Town plans to raise its water and sanitation tariffs by 13.28% — almost double that of some other metros.
Employee-related cost increases are also high for Cape Town at 8.96% this year and
9.14% for next year, against 5.4% and 6.3% for Joburg over the same period.
On the other hand, Joburg will find it difficult to justify an electricity price hike of 8.1% — almost 2 percentage points higher than the regulator’s guideline.
DA spokesperson on local government Cilliers Brink estimates that the extended lockdown has led to revenue undercollection of R1bn-r3bn in each of the metros. He expects a similar slump in 2020/2021, with the small, rural municipalities possibly suffering bigger losses.
“The municipal sector will have to make tough decisions about the future, including what functions they should consider dropping and how to prepare for future wage negotiations,” says Brink.
His view is that Salga should have mounted a collective exemptions application for the whole sector, given that the political power of the union movement makes it difficult for individual municipalities to buck collectively negotiated wage increases.
“Opting out of these increases is no simple matter,” he says. “Municipal trade unions like Samwu are unlikely to give in without a vicious and prolonged fight … Labour disputes can get very messy for a municipality and that can mean putting services on hold.”
So, for the financially stronger metros, such as Cape Town and Joburg, the issue of whether to seek an exemption is not straightforward. “Ultimately there might be more painless ways of saving money,” says Brink. “The answer isn’t an obvious one.”
However, at the very least, the situation demands an explanation from mayors as to why they haven’t considered exemptions, and from the Treasury and Salga as to why they haven’t been more proactive.
Samwu thinks it’s because the Treasury has always failed to take local government seriously as an institution. Maybe it has a point.
NMB= Nelson Mandela Bay Note: Ekurhuleni is revising its budget this week, so these high increases as proposed in March might no longer be applicable
Source: DA, City of Cape Town, FM research
Had Joburg kept employee-related increases in line with CPI, it would have had an additional R21bn to spend on service delivery