Public sector wage demands pose risk to fiscus, warns Old Mutual

OLD Mutual yesterday warned of the serious risks to the fiscus posed by the public sector employees demanding above-inflation pay hikes.

Public sector unions on Monday tabled their new wage demands before the government at the bargaining council, demanding inflation-linked wage increases plus 4 percent across the board.

At a quarterly investment briefing, Old Mutual Investment Group chief economist Johann Els said curbing wage growth remained core to government’s medium-term fiscal consolidation plans.

The National Treasury has pinned hopes of an economic turnaround on reducing the wage bill by more than R300 billion in the next three years to rein in ballooning debt.

The government’s expenditure on wages is expected to be R650.4bn in 2021/22 as the wage bill is expected to rise by 1.2 percent every year for the next three years.

Els said the risks to fiscal consolidation plans were very visible due to a possible failure by the government to get the wage agreement on track.

He said the government needed to be firm about its wage freeze proposal or else it would need to start retrenching workers as the fiscus cannot afford salary increases.

“The risks are very clear, but I think the government is going to try their utmost to get to the Budget forecast. There might be some slippage, but nothing huge,” Els said.

“The unions will have to come to the table and say we don’t want any retrenchments or we are willing to accept so many retrenchments.”

This comes amid a court battle between the unions representing more than 1 million government employees over salary increases in the last year of the three-year wage agreement signed in 2018. In December, the Labour Court of Appeals ruled that the government did not have to adhere to a previous three-year wage agreement with public-sector labour unions.