SA’s Economic Recovery, Take One: Amid entrenched positions, hard decisions required on the public wage bill

Research commissioned by Business Unity South Africa (Busa) released on Monday indicates public sector salaries are too high, while employment is increasingly unproductive. But what to do about it remains complicated, as agreement between social partners is needed on either cutting the public wage bill by head count or salary, or both – or raising taxes to continue to pay civil servants.

The research by Intellidex debunks some claims: since 2008 the overwhelming increases in public servants salaries took place in the lower- to middle-level ranks, not the top officials. But it confirms other assertions: the real salary increases that “outstripped the rate of growth of the economy” were not linked to increases in productivity. 

Compared with gross domestic product, South Africa spends more of its national income on the salaries of its 1.3 million civil servants than is the norm in most of the 46 countries surveyed in an International Monetary Fund study.

That has other consequences, according to the research, “The Public Sector Wage Bill: An Evidence-Based Assessment and How to Address the Challenge”.

“This implies that government’s wage bill is unusually large both because a large fraction of GDP is spent on it and because that spending is, to some extent, to the exclusion of other kinds of public spending.”

And that’s the eye of the storm.

October’s Medium-Term Budget Policy Statement (MTBPS) outlines how for the numbers to come anywhere near being workable, the public wage bill can’t increase. And departments have to cut their baselines or cope with a 0% increase in 2021 as must Basic Education, which still has to pay higher maintenance costs alongside rising water and electricity fees at schools. 

But that’s the price of, for example, SAA getting its R10.5-billion (not)bailout, after receiving R16.4-billion in February’s Budget so it can pay maturing debt. Retaining the lossmaking, and effectively grounded, national airliner was a decision of the governing ANC January 2020 lekgotla that decided Cabinet had to operationalise that decision.

Crucially, any public wage discussions seem to be at a stalemate. It seems both the government and labour are reluctant to move until the outcome of the court hearing that starts in early December 2020 over the government’s refusal to pay the 2020 increment in the last of a three-year wage deal because it was “unaffordable”, as National Treasury Director-General Dondo Mogajane put it again on Friday in Parliament.

No date has been set yet for the next salary multi-year agreement in the public service and administration bargaining chamber.

While Finance Minister Tito Mboweni announced the public wage bill freeze in the MTBPS, he’s also made it clear he’s been told to stay in his lane. That means Public Service and Administration Minister Senzo Mchunu must deliver the tens of billions of rands in expenditure cuts.

“We do have ongoing engagements with labour,” said Mchunu’s spokesperson Kamogelo Mogotsi on Monday, also confirming no bargaining chamber date is yet set for the next multiyear agreement.

Asked about tensions and possible labour action, Mogotsi said at this stage it was not possible to say anything as negotiations had not begun.

Mchunu has kept a low profile on the public wage bill front. Labour has criticised him, and Mboweni, for wrongly claiming there had been engagements. Or as one of Cosatu’s largest affiliates, the National Education, Health and Allied Workers’ Union (Nehawu) put it:

“He [Mboweni] saw it fit to lie and say discussions are taking place between government and organised labour on the looming salary freezes. Such discussions are not taking place…”

Talking up a storm in opposition to any cuts, in October 2020 Nehawu clinched a 6.1% salary deal for its members at Parliament and the nine provincial legislatures. At the end of October, the South African Municipal Workers’ Union (Samwu) secured an effective double-the-inflation-rate 6.5% increase at South Africa’s water boards, backdated to July 2020, with a 10% housing allowance increase.

A public sector-wide multiyear salary agreement would be needed for certainty in South Africa’s public finances.

But if no negotiations take place, or negotiations stall, the government may well want to impose zero increases in wages from 1 April 2021 — but that could raise tension from strong words into street protests. The last civil servants’ strike was in August 2010, when more than a million state workers downed tools.

Among lawmakers, the sentiment was against any wage freeze as the matter was kicked into touch — to the public service and administration bargaining chamber. This was a central upshot when Parliament’s finance committees met on 4 November 2020 for the MTBPS public hearings.

Cosatu came out strongly against any cuts. “It is unacceptable that government is shifting the blame for a broken state upon the backs of nurses and police officers. It is politicians and senior managers, their friends and relatives that have stripped the state dry,” said the written submission of the labour federation — an alliance partner of the governing ANC.

Similarly, the People’s Budget Coalition rejected such cuts, arguing in its written submission that this would “negatively impact on the state’s ability to drive economic recovery and fulfil human rights”. Instead, the government had to improve its spending, not make cuts, and look at raising extra money through, for example, an annual wealth tax.

Standing Committee on Finance acting chairperson Noxolo Abraham summed it up like this: “Cutting the [public] wage bill would be detrimental to the country. So what are the alternatives?”

But those alternatives are almost non-existent. A day earlier, the Financial and Fiscal Commission had already cautioned that 2021 would see “unprecedented”, “extremely harsh” and “eye-watering” expenditure cuts.

https://www.dailymaverick.co.za/article/2020-11-03-fiscal-reality-check-saa-bailout-public-servants-wage-freeze-and-service-delivery-under-the-spotlight/

While Parliament’s finance committees are preparing reports on the fiscal and financial framework, up later this week for adoption, it is expected they will link a possible public sector wage freeze to cuts for lawmakers, ministers and others across the state. 

It’s an astute political move, and one that signals readiness to accept the dire state of South Africa’s public finances while not taking the hard decisions to ensure fiscal sustainability. It picks up Mboweni’s call in his MTBPS address in the House for everyone in the state to reconsider their incomes — and perks. 

“Consideration should be given to the proposal for across-the-board compensation pay reductions to management-level positions, across national, provincial and municipal governments, state-owned entities [and] all other senior public representatives,” said Mboweni.

Crucially, the finance minister’s call for further cuts was in addition to the public sector wage freeze.

Back to Busa and its call for objective discussions and debate on the public sector wage bill, including talks with labour and government.

Busa CEO Cas Coovadia said on Monday that the public wage bill could be a critical impediment to progress on economic recovery as time was running out.

“We are at that stage in our country where the decisions have to be taken. There has to be very, very strong leadership by the president… They have to see this [public sector wages] as a critical national interest decision.”

Business Leadership South Africa CEO Busisiwe Mavuso, who serves on the Busa board, shared this sentiment. If South Africa did not address the public sector wage question, the ensuing fiscal crisis, even if it took another two or three years, would be devastating.

“We are well on our way to being a failed state if we don’t address this.”

Asked about what trade-offs business would make in return for public servants accepting a wage freeze, there was no direct, clear-cut answer. Presumably because a cut in executive pay, as progressive organisations and labour have long demanded, would leave shareholders smiling about some extra cash, but not actually put anything directly into the national purse. 

Busa officials, including vice president Martin Kingston, emphasised business would contribute by investment, by creating jobs and pushing economic growth for which business could be held accountable.

But the bottom line remains: the governing ANC views as central, both ideologically and practically, the control of the state – or, as it’s often referred to, controlling the levers of power.

The Intellidex research argues, “unions have been particularly effective at leveraging this to make the case for policies that favour the interests of public servants”. 

Agreeing on affordability would be the first social compacting step. But too many seem to have no sense of urgency, or priority, to find one another on what South Africa could afford to sustainably spend on public servants’ salaries.

“Thus, in the absence of a dramatic and sustained acceleration of GDP growth, either taxes will have to rise to accommodate current payroll trends or the rate of growth of payroll costs will have to be reversed…” the Intellidex research says.

The question remains: in South Africa’s heavily contested politics, does the political will exist to push those difficult decisions? DM