The refusal by Finance Minister Tito Mboweni to award 1.2 million public servants inflation-busting salary increases over the next three years has paid off – at least in alleviating the pressure on South Africa’s deteriorating public finances.
Mboweni set the cat among the pigeons in 2020 when he proposed a three-year wage freeze for public servants in an attempt to cut government expenditure by R300-billion and rein in ballooning government debt of R5.23-trillion.
For many years the spend on wages for public servants has been the single-largest component of the government’s consolidated expenditure. In 2019/20 alone, the government shelled out R623.8-billion to pay public servants – a line item in the national Budget that accounted for about 34% of government expenditure.
Treasury officials have said the spend on public sector wages would have accounted for more than 50% of government expenditure if Mboweni awarded public servants salary increases of between 4.4% and 5.4% from 1 April 2020. But Mboweni has refused to implement salary increases, which is starting to benefit South Africa’s public finances.
In the 2021 Budget Review, Treasury said government expenditure will reduce by R264.9-billion over the next three years thanks to the wage freeze in the public sector. This money would have been the amount for wages that the government would pay state-employed nurses, doctors, teachers and police officers. But it can now be directed to other pressing service-delivery initiatives such as the roll-out of Covid-19 vaccines to 40 million people, for which the state has set aside up to R19.3-billion.
Scrapped tax proposals
The savings from not giving public servants salary increases has given Mboweni enough room to not implement wholesale tax increases to boost government revenue. In the October 2020 Medium-Term Budget Policy Statement, he pencilled in tax increases of R40-billion over the next four years to boost revenue. In doing this, there was chatter in economic and academic circles about the introduction of a wealth tax, increases of already high personal income taxes and sin taxes on booze and smokes.
But in the 2021 Budget Review, Mboweni has withdrawn the plan to raise R40-billion in taxes, saying public finances have received a R99.6-billion windfall from better-than-expected collection in tax revenue from households (employed individuals) and industries such as mining.
Mboweni’s determination on the three-year wage freeze will probably anger trade unions representing public servants, which have vowed to challenge the government in court. Already, trade unions affiliated to Cosatu and the Federation of Unions of SA have approached the Constitutional Court to appeal against a Labour Appeal Court ruling that handed the government a huge victory in December 2020. The court ruled that the government shouldn’t implement wage increases for public servants in 2020 because public finances have deteriorated due to the Covid-19 pandemic.
There’s a widely shared view that South Africa’s public servants are well remunerated – and their remuneration doesn’t match productivity. The country’s wage bill as a share of economic output (or GDP) is approximately five percentage points higher than the Organisation for Economic Cooperation and Development average and on par with Iceland and Denmark.
Source: 2021 Budget Review
Although Mboweni is steadfast on wage freezes for public servants, the expenditure on wages is still expected to be a whopping R650.4-billion in 2021/22. But it could have been higher had Mboweni caved into trade union demands and pressure.
The wage bill is expected to rise by 1.2% every year for the next three years because the minister is mulling ways to reconfigure employment in the state. To cut the wage bill further in future, he has proposed the early retirement of public servants through a 0.8% head-count reduction in 2021 and abolishing non-critical posts. In the short term, the early retirement of public servants would cost the state more because pension savings and benefits will have to be paid out. But the state would benefit from having a leaner head count down the line.
“In addition, the government is exploring measures such as harmonising allowances and benefits, reconsidering pay-progression rules and reviewing occupation-specific dispensations. Performance bonuses are already being phased out and careful consideration is being applied to amend or abolish some allowances and benefits,” the Budget Review reads. DM/BM