There is no urgency for the government to conclude an agreement with public sector trade unions on a reduction in the wage bill before the February budget, a senior Treasury official said on Friday.
Commentators on the medium-term budget policy statement (MTBPS) tabled in parliament in October by finance minister Tito Mboweni questioned the government’s ability to reach an agreement by February to fulfil the undertaking to reduce the public sector wage bill by R150bn over three years. The credibility of this proposal was questioned given the limited time available to finalise a wage deal.
Credit ratings agency Moody’s Investors Service also wants to know what concrete plans the government will implement to achieve its fiscal consolidation targets.
A reduction in the growth of the public sector wage bill is necessary to reduce the budget deficit and debt level and reach a primary budget balance by 2022/2023, excluding financial support for Eskom. The difficulty of reaching an agreement is heightened by the fact that the existing three-year wage agreement the government has with public sector unions is only midway, meaning negotiations would have to open before its expiry in 2022.
However, the acting head of the Treasury budget office, Ian Stuart, said in an interview after a briefing to parliament’s two finance committees that if no agreement is reached by February the reduction in the growth in the wage bill could be factored in at a higher level in the two outer years of the medium-term expenditure framework.
In principle you could leave the current wage agreement in place and then aim to reduce the spending growth of the wage bill to the outer years of the framework
— Ian Stuart, acting head of the Treasury budget office
“I don’t think we can credibly have a new settlement by then [February],” Stuart said. “The discussions will have to be around what could credibly be put into the medium-term expenditure framework in terms of the rate of growth of the wage bill.
“We are not anticipating that the whole process that has to be gone through with the normal public service bargaining chamber will be completed by then. That has to stand. But a decision can still be taken to set an expenditure ceiling that is lower than what is now in the framework.”
This would require a political discussion. A political decision would also be needed on whether negotiations are opened midway through the term of the public sector wage agreement.
“In principle you could leave the current wage agreement in place and then aim to reduce the spending growth of the wage bill to the outer years of the framework. The outer year’s primary deficit excluding Eskom is R67bn. We are proposing that we should be aiming to reach a balance in that year. You can spread it over three years or you can put more of the fiscal consolidation into the outer years of the framework,” Stuart said.
“It is a proposal, so obviously a decision still has to be reached. The actual balance of the reductions between the first, second and third years can also be decided upon. In principle we need to run primary surpluses to stabilise debt, and that is why we are arguing that over the next three to five years if you want to stabilise debt you need a primary balance in the next three years or so.”
Accommodative
In the meeting with MPs, Stuart said any wage measures adopted for the public sector would have to apply to state-owned companies and entities as well.
He gave the Treasury’s response to public comments on the medium-term budget, in particular the debate about whether the government should adopt stimulatory or austerity measures. He said the Treasury has tried to achieve a balance between growth reforms and fiscal measures to stabilise the debt-to-GDP ratio. It is important to avoid a fiscal crisis, he said.
Stuart noted that SA has added more debt as a share of GDP than most of its peers over the past decade. “Our view is that fiscal policy has been fairly accommodative. We have been running large deficits and ... we have had real growth in non-interest spending over that period.”
Budgets over the past 10 years had not been austerity budgets but ones that aimed to support the economy and to ensure there is a sustainable long-term outlook. The government has tried to achieve a fine balancing act.
Stuart cautioned against adopting a rule for debt to GDP as some have proposed, saying this is difficult in an uncertain economic environment. Maintaining a set debt-to-GDP ratio might require huge cutbacks in expenditure if GDP does not grow significantly, and this would not be good for either the economy or service delivery.
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