Budget 2012: Cosatu wins, everyone else loses

By Paul Berkowitz 28 February 2012

Pravin Gordhan’s budget estimates public-sector wage increase will average about 6% over the medium-term, an inaccurate figure if past spending is anything to go by. PAUL BERKOWITZ looks at how union wages continue to increase at the expense of the rest of us.

Any national budget is a trade-off between different interests. If big business had its way, the budget would relax labour laws, cut corporate taxes and dish up fat subsidies disguised as “sectoral incentive programmes”. If big labour had its way, labour brokering would attract a minimum 20-year jail sentence and inflation targeting would be scrapped. Et cetera, et cetera and so forth as they say.

Evidence shows that organised labour has been winning the battles over the fiscus for the past several years, both in terms of policy and when measured in cold hard rands and cents. In terms of policy the issue of a youth wage subsidy has been dead in the water for more than five years thanks to sustained opposition by Cosatu.

The space to debate fiscal reforms aimed at helping small businesses grow and thrive (lower taxes and smaller regulatory burdens) has been crowded out with tub-thumping over labour brokers and so-called “decent work”. Big business and big labour fight over their big interests like the big elephants they are. Small business and entrepreneurial spirit are the grass they trample and the collateral damage of industry-wide bargaining councils. It’s the smaller employers in the metalworking industry that can’t sustain above-inflation wage settlements year in and year out and have no choice but to eventually shut down. It’s the informal sector shedding jobs according to the latest Labour Force Survey.

It’s also the public-sector employees, the members of Nehawu, Sadtu and Samwu that have managed to extract the biggest shares of loot from the fiscus. (Not so much Samwu in the last year or so, poor things, as they came a bit unstuck in last year’s negotiations with Salga. But they’re already muttering darkly about this year’s wage negotiations.)

The first big clue is in Chapter 3 of the Budget Review document (Fiscal Policy). Tables 3.3 and 3.4 show how the treasury revises its estimates of revenue and expenditure over the medium-term.

Every Budget will project revenue and spending over three financial years. Any financial year (call it Year X) will first receive an estimate in the budget two years prior (Year X Minus Two) which will be revised in the budget one year prior (X Minus One). By the time the budget for Year X comes around, it will have been revised a second time. By the time Year X Plus One comes it may even be revised a third time, but it will be too soon to confirm the actual numbers. Only by the Year X Plus Two will there have been sufficient time for a proper post-mortem of Year X.

There are a number of reasons for revisions, both up and down. The economy can be significantly healthier or sicker than we guessed it would be when the first estimates were made, resulting in higher or lower tax revenues. There could have been over- or underspending on capital assets. And the treasury could have assumed (and hoped) that public sector wage increases would be more closely aligned to inflation rates than they actually were.

Table 3.3 shows how previous estimates for the 2010/11 and 2011/12 financial years compare with initial outcomes and revised estimates respectively. In the “Compensation of employees” line item it can be seen that R15.4-billion more was actually spent on employee costs in 2010/11 than the last estimate and R8.1-billion more is estimated to have been spent on employees last year compared with the previous estimate.

Table 3.4 looks at the adjustments to the estimates for the next two years and here too the estimates for employee compensation have risen R13.2-billion for the 2012/13 financial year and R14.2-billion for 2013/14. This is happening against a backdrop of a –R3.3-billion and –R2.6-billion downward revision for overall expenditure in those respective years.

Minister Gordhan went to great lengths to trim as much fat from the budget to show the bond markets how future budget deficits are expected to narrow. Unfortunately, some pieces of fat are more dispensable than others: the treasury has been quite happy to draw down the entire contingency reserve and borrow less to keep spending down. The salaries and wages fat is attached to the rump of the most sacred of cows.

If you follow the money down to provincial level (and you should, because a lot of doctors and teachers are paid by the provinces) you can see something similar. In Gauteng, in the 2007/08 financial year, R19-billion was paid as compensation to employees. Just five years later, in 2012/13, that figure was forecast to double to R38-billion. In 2007/08 only 46% of the provincial budget went to paying employees – by 2012/13 this has been forecast to increase to 53% of the total.

The annual salaries bill in Gauteng has increased over the last five years by some 14% or so without any concomitant increase in the achievements of the provincial schooling system. The less said about the Gauteng health system (and its finances) the better.

There is an upper limit to how big the wage bill can grow and to how great a share of total expenditure it can balloon. Put very bluntly, employment in the public sector has become a much more lucrative source of welfare for many useless, connected “nogschleppers” than for those poorer households officially supported by the state.

Furthermore, for all the noise the officially employed make about single-handedly supporting the very poor (even in the comments in this medium) the budgeted increases for social grants don’t keep up with inflation. Most of the increases are between 5% and 6%. Future growth in the number of beneficiaries is forecast to slow dramatically, falling to just 1.6% year-on-year by the end of the medium-term period. The budget certainly isn’t pro-poor in terms of how much tax revenue is given to the poorest of the poor.

They’re seeing their grants shrink in real terms.

Something is going to have to give in the fiscus. The treasury has budgeted for just over 6% in employee-related increases over the medium-term. It has seen its budgets blown in previous years in the aftermath of what we locals sardonically call Strike Season. Back then it could shift around money left over from unspent capital projects and drawn down the contingency reserve. For this year, it’s recommitted to spending its capital budgets and the contingency reserve is already half of previous estimates (possibly because of multi-year wage settlements).

The public sector unions might still extract more rents from the fiscus this year, but treasury will push back harder than before. It is becoming more and more obvious to the 6-million unemployed that the couple of million unionised employed are not their brothers in solidarity. The middle-class and the working poor grow less thrilled every year with the quality of public education and healthcare.

As the lion’s share of benefits from successive budgets accrues to fewer and fewer citizens, more and more voters will have nothing to lose by abstaining from voting or even changing their votes. The results of the cost-benefit analysis of acceding to the unions’ demands must be trending negative by now. With an ANC elective conference following just a couple of months after the Strike Season, the second half of 2012 is going to be very interesting indeed. DM

Photo: Union wages continue to increase at the expense of the rest of us. Reuters/Siphiwe Sibeko.



The Trojan Horse that wheeled R600m out of state-owned entities

By Susan Comrie for amaBhungane

Some firing squads are all issued with blank cartridges with the exception of one person. This helps alleviate personal responsibility for the execution squad.