Big budget risk from public wages

An unaffordable public sector wage agreement will prompt trade-off decisions in government spending, said finance minister Enoch Godongwana in the budget speech.

The wage bill is a significant cost driver for the government.

The remuneration of government employees has a “major bearing on the public debt trajectory”, according to professor André Roux, an economist at Stellenbosch Business School.

He said in a statement that South Africa spends almost 15% of its GDP on remunerating government employees, which is one of the highest rates in the world.

Godongwana said that the budget does not pre-empt the outcome of wage negotiations, as they just began.

If a large compensation agreement is reached, “this will mean restricting the ability of departments and entities to fill non-critical posts”, he said.

“It will also mean achieving cost-savings from major rationalisation of state entities and programmes.”

BusinessDay reported earlier this week that the Public Servants Organisation wants a 12.5% pay increase for their public sector members.

In a statement, the Confederation of South African Trade Unions (Cosatu), called for the government to move away from budget cuts that “suffocate and squeeze an already struggling economy”.

With respect to public wage increases, Cosatu said, “public servants, like other workers, are drowning in debt and over the past few years have seen their wages being eroded by inflation”.

“The government needs to respect collective bargaining, rebuild its broken relationship with its employees, and understand their need to earn a living wage to cope with the rising costs of living.”

Uncertainty from looming negotiation

Stellenbosch University economics professor Krige Siebrits, who specializes in fiscal policy, told Daily Investor that finding a better way of streamlining the wage bill with the budget would reduce the uncertainty in the budget numbers.

Wage negotiations can be protracted and it is difficult for the government to stick to the wage increase figure they announce, said Siebrits. 

“Every year you face that uncertainty. With the economy being where it is, I think the pressure on living standards, [means that] the unions are going to be difficult, or make it as hard as possible this year [to reach an agreement], and probably in the next few years too.”