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Treasury is making good on its promise to reduce the pu...

Business Maverick

MEDIUM-TERM BUDGET 2021

Treasury making good on promise to reduce public sector salary bill 

Thousands of public sector workers protest in Cape Town. (Photo: EPA / NIC BOTHMA)

Two years ago, National Treasury set the cat amongst the pigeons by announcing a three-year salary freeze for overpaid public servants. This didn’t go down well with trade unions. The MTBPS shows that Treasury’s determination is starting to pay off.

The unpopular decision by former finance minister Tito Mboweni to implement a three-year salary freeze for SA’s 1.2-million public servants is starting to pay off, as the National Treasury is making headway in stablising its expenditure on remuneration in the public sector. 

At R665.7-billion during the 2021/22 financial year, compensation for public servants is the single largest component of the government’s total expenditure, accounting for a whopping 35%. The government is spending a large portion of its budget to compensate just 2% of SA’s population. 

According to the 2021 Medium-Term Budget Policy Statement (MTBPS), the cost of remunerating public servants will fall from R665.7-billion in the financial year 2021/22 to R665.2-billion in 2022/23 and drop further to R656-billion in 2023/24. Then the cost will grow R685.1-billion in 2024/25 because some public servants will retire, paving the way for their pension benefits to be paid out. 

Over five years (from 2021 to 2024), the average growth in the government’s expenditure to remunerate public servants is expected to be 1% — a marked improvement than in recent years when the average growth was more than 5%. 

Mboweni’s successor Enoch Godongwana has now been handed the political hot potato of being firm with trade unions representing public servants by rejecting their demands for inflation-busting salary increases. 

Mboweni and his Cabinet colleagues recently signed a one-year salary increase deal to settle a dispute with trade unions that have rejected proposals for a three-year pay freeze.  For 2021, public servants were awarded a 1.5% salary increase, which was further sweetened with a monthly cash allowance of between R1,220 and R1,695. 

This sliding scale ensured that all public servants received R1,000 per month in their pockets after-tax, regardless of their salary level or the number of years in service. The 1.5% salary increase was already budgeted for, but the cash allowance wasn’t. In other words, it was a new expense.

According to the MTBPS, the cash allowance is expected to cost the government R20.5-billion in 2021, which is already included in the total compensation expense of R665.7-billion. The actual cost of the cash allowance is much higher than initial projections, as the Treasury put the cost at R18-billion. To fund the cash allowance, Treasury will take money away from the Infrastructure Fund, an initiative by the government to bankroll infrastructure projects to grow the economy and create jobs.

Godongwana now has two big hurdles in maintaining the stability of the public sector salary bill. 

The next round of salary negotiations for 2022 between the government and trade unions are set to kick off as soon as November, and a showdown is expected.  The trade unions plan to negotiate hard for cost-of-living salary increases in 2022, and possibly make the monthly cash allowance a norm in the future. 

In the MTPBS, the Treasury has indicated that the cash allowance might be a norm in the future. It has pencilled in an additional R20.5-billion expenditure for the cash allowance if a salary deal for 2022 is not reached with trade unions. But another threat is looming that might undermine Godongwana’s efforts to cut the public sector salary bill to bring ballooning state debt and expenditure under control.  

Trade unions have dragged the government to the Constitutional Court to force it to implement inflation-beating salary increases in 2020 of more than 5% that were promised by the government but were never implemented. The earlier court (Labour Appeal Court) has already ruled in the government’s favour, saying it cannot implement salary increases that were not affordable in the first place. Trade unions are appealing against this ruling. 

If the Constitutional Court rules in the favour of trade unions, the government would be forced to retroactively pay public servants 2020 salary increases. This is a large bill that the government will have to pay even though it cannot afford it.  

The MTBPS notes that a court ruling in the favour of trade unions would “have significant effects on the fiscal framework”, as the government would be forced to reduce the size of public service (possible retrenchments) and increase its borrowing requirements. DM/BM

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