Wage pact weighs on Nene’s budget
Public sector employees may be happy, but the hike comes at a rotten time
This was a medium-term budget characterised by damage control. There was the damage control needed to stem the violence that broke out in the parliamentary precinct during student protests against university fee increases, and the damage control the ANC needed to exercise as opposition party members were, yet again, kicked out of the National Assembly.
But in budget terms, it was specifically about controlling the damage caused by one item — a steep increase in pay for civil servants.
The wage hike the public sector finally won in June has come to haunt the treasury at a time when the odds are stacked against the country.
The economy is forecast to grow by 1.5% this year and by 1.7% and 2.6% in the next two years. This is a marked decline in the February budget forecast of 2% for this year, followed by 2.4% in 2016 and 3% in 2017.
Tax revenues have also been revised down, with a decline of R7.6-billion expected this year and a total shortfall of R35-billion in the coming years.
Alongside the weakening outlook for global growth, domestic constraints such as energy supply shortages, the labour relations environment and poor policy certainty and co-ordination weigh on the economy.
Finance Minister Nhlanhla Nene warned in February’s main budget that a higher than inflation increase for public sector workers would be a major risk to the government’s spending plans.
The increase has meant that an additional R64-billion must be found, which has not been budgeted for — an additional R12-billion in 2015-2016, R21-billion in 2016-2017 and R31-billion in 2017-2018.
Although the wage agreement was a nominal 7% for this year, followed by an increase in the consumer price index of 1% in the coming two years, it has resulted in an effective 10.1% increase in the wages and benefits of government employees this year.
Despite Nene being at pains to point out that the government has remained within its expenditure ceiling targets, it has achieved this with some technical tweaking of the nation’s books.
The wage settlement has played havoc with efforts to reprioritise government spending towards muchneeded investment and away from spending on items such as salaries.
In a briefing to reporters ahead of delivering his speech on Wednesday, Nene conceded that the wage settlement has “crowded out” other spending priorities.
The technical adjustments the treasury has made to the expenditure ceiling now exclude payments that are directly and fully financed by dedicated revenue flows authorised by specific legislation, such as the skills development levy, as well as payments that arise from technical adjustments to the value of assets and liabilities.
They will also exclude the payments funded by the sale of financial assets, such as the R23-billion granted to Eskom and the R2-billion used to fund the Brics (Brazil, Russia, India, China and South Africa) grouping development bank, both of which are thanks to the government selling its stake in Vodacom.
These technical adjustments to noninterest expenditure — or the portion of spending that is not used to pay off government debt — will help keep expenditure in the range of R1.1-trillion in 2015-2016, R1.2-trillion in 2016-2017 and R1.3-trillion in 2017-2018.
But most of the costs of the wage agreement will be funded through savings, reallocation of other f unds and the contingency reserve, meant for events such as disaster relief.
Contingency reserves of