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Opinionista

Stop stealing to pay the public sector wage bill

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Nazmeera Moola is Head of SA Investments at Ninety One.

The brewing battle between the government and public sector unions is not a surprise. It’s been inevitable for several years that this war would need to be fought. Since 2009, South Africa’s public sector workers have received well-above-inflation wage increases, with absolutely no improvement in their productivity.

The lack of accountability for poor service delivery is the problem. Ministers have been changed due to political expediency. Director-Generals are “deployed” by the ANC. What a silly idea it is for the ANC to deploy bureaucrats! And unions have done their best to ensure that underperforming public sector workers cannot be disciplined – whether they are at the frontline or in cushy jobs in Pretoria.

One of my colleagues recently explained to me that the reason she managed to get a good education in one of South Africa’s more impoverished areas was that she attended an “affordable” privately owned school in the district. Her school had no better resources than the public schools in the area – no computers, only chalkboards and desks. However, they had a principal/owner who could discipline and fire underperforming teachers. Moreover, the principal/owner of the school was incentivised to produce the best possible matric results, as this is what attracted more students to his school. Not surprisingly, the pass rate and grades at her school were several multiples better than the neighbouring public schools. 

While the blame for poor performance does not rest with the average teacher or nurse or policeman, their output has not warranted continued real wage increases in the past decade. Compensation (including benefits) in the public sector has grown by an average of 8.5% in the past three years. In the rest of the non-agricultural economy in South Africa, wages have grown by 6% a year. Since inflation has averaged 4.8% during the period, public sector workers have received significant real wage increases. 

To pay for these generous increases the following undesirable outcomes have occurred: 

  • Capital expenditure budgets have been cut across national, provincial and local governments. This has meant delays to school upgrades, road repairs and the re-equipping of hospitals;
  • Current non-wage budgets have been cut. There are growing stories of hospitals that cannot pay suppliers as they run out of money nine months into the year. If South Africa hopes to use government procurement to develop small business, these businesses need to be paid on time;
  • South Africa has borrowed more. As a result, debt interest costs now consume 13% of South Africa’s government expenditure – more than double the level of 10 years ago; and
  • Limited adjustment in the budget in recent years to personal income tax brackets to compensate for inflation. The February 2020 budget was the first time in five years that full inflation adjustment was provided to tax brackets.

Bracket creep is tax jargon that camouflages the insidious nature of this stealth tax. Let’s quantify this impact for a private-sector worker earning in the same region as the average public sector employee (who earned R393,000 in total compensation in 2019). 

If full inflation relief had been provided to tax brackets since 2015, a worker who was earning R200,000 a year in 2014 and received inflation increases over the period, would have taken home R4,700 more in 2020 – almost 2% more of their gross salary. 

A worker who was earning R350,000 a year in 2014 with inflation increases, would have taken home R8,700 more this year. In both cases, the workers would have been able to take home 2% more of their salary. Instead, their income was diverted to fund wasteful government spending and quite generous public-sector wage increases. Why should a private-sector worker earning R200,000 a year be penalised so a public sector worker, whose productivity is not rising, can experience real wage growth? 

The wage bill of the public service is unsustainable. It is stealing from capital budgets, spending on textbooks and relatively lowly paid private-sector workers. It is resulting in a surging debt service cost that will guzzle a growing share of government expenditure. South Africa cannot afford it. 

Please note that no one is asking public sector workers to earn less. Minister Mboweni’s Budget only envisions a slower growth in wages. 

If unions will not agree to this, then retrenchments are needed. If the government is serious about taking R37-billion out of the public sector wage base in 2020, it can be done in one of two ways – either wages grow by less or workers are cut. Given the weak economic environment, the latter is deeply undesirable. However, the government needs to be ready to implement such a move if unions will not budge. 

If it is not, then there is no incentive for unions to reopen a three-year wage agreement that still has one more year to run. If it is not, then the fiscus will continue to deteriorate – and public sector workers will continue to be paid more to provide very little. BM

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