GOVT CAN’T AFFORD TO BLINK IN WAGE TALKS

With SA’s fiscal credibility at stake, it is unfortunate that the impression has been created that the government has caved in during the public sector wage talks, by offering workers a 1.5% increase.

Actually, the truth is the reverse: it is standing firm in demanding a three-year wage freeze — the centrepiece of its commitment to cut medium-term spending by R265bn to stabilise the debt ratio. The only new sweetener offered is a R987 monthly cash gratuity to all workers, which amounts to about R15bn in the 2021 fiscal year.

And, we are told, this sweetener will be financed in a fiscally neutral manner through expenditure reprioritisation. In other words, this R15bn has been sanctioned by the National Treasury, which will find the money in such a way so as not to increase SA’s overall funding envelope, or worsen the deficit.

Of course, if this carrot comes at the expense of growth-enhancing spending (like building roads and other infrastructure), this would be somewhat regressive. But it would not be a train smash. Some small movement on the wage bill was always on the cards, given the militancy of public sector trade unions and the government’s exceedingly poor track record in wage talks.

What would have been alarming, and possibly even fatal for SA’s fiscal credibility, would have been if a 1.5% cost-of-living adjustment had suddenly been granted to avert a public sector strike.

Thankfully, this isn’t the case. Rather, that 1.5% increase relates to the customary pay progression granted annually to workers. And this amount was never in question, as the Treasury’s budgeting guidelines issued in August 2020 spell out. This increase was already baked into the pie, and had been budgeted for all along.

The part of the compensation package that is still being held to zero is the cost-of-living adjustment. And on this critical point, the government has not yet budged. It is crucial that it continues to hold the line, even if it is faced with the very real prospect of a prolonged strike. (Public sector unions are demanding an inflation plus 4% increase for 2021/2022, across the board.)

On this demand, there is still much road to cover. A turning point could come when the Constitutional Court pronounces on the legality of the 2020/2021 wage freeze later this year. Assuming the apex court finds in favour of the Treasury, as the lower court did, the government would find itself in a stronger position to dictate a political settlement with labour over a multiyear wage dispensation.

And cementing a multiyear wage deal is vital to SA’s fiscal sustainability, as it would remove the cloud of uncertainty that has diminished the credibility of the budget and depressed SA’s credit ratings outlook over the past year. It’s imperative that SA not find itself back here next year for another round of confidence-sapping wage talks. If a deal can be struck on below-inflation increases for the two fiscal years after 2021, that would be a win.

Most analysts have so far been surprised at how well the government has held the line on the wage bill. Certainly, compared to what most people expected a year ago, it has shown commendable fiscal restraint — even if it comes after years of paying civil servants over the odds.

Nonetheless, the ratings agencies see SA’s fiscal risks tilted firmly to the downside, and they expect more fiscal slippage. So, this means that if SA can just deliver what it said it would — especially on the wage bill — it will reduce fiscal risk and alleviate some of the pressure on the ratings, as well as borrowing costs. The government cannot afford to blink yet — too much is at stake.