Finance minister Enoch Godongwana pencilled in a 3% increase for public sector wages as was widely expected, an offer he says is in the best interest of the fiscus and public service workers.
“Implementing it does not undermine the collective bargaining process,” Godongwana said during his presentation of the medium-term budget policy statement (MTBPS) in parliament on Wednesday.
“We believe that the facilitation process has helped all parties get to this point. Therefore, the spending estimates we are tabling today include this amount. This offer will be implemented through the payroll system, and backdated to April 2022,” he said.
Godongwana said the final offer emanated from a facilitation process and includes the continuation of a non-pensionable cash allowance for the current financial year.
“This translates into an average of R1,000 per employee per month until March 2023 and a pensionable salary increase of 3% for public servants,” he said.
“The cash gratuity comes to 4.5% and if you add the 3% that’s 7.5%. So that’s where we are with the wage negotiations,” Godongwana told journalists during a media briefing.
He warned that higher-than-budgeted public service wage costs would strain fiscal resources and negatively affect the government’s effort to stabilise the public finances, He said additional fiscal measures or reductions in headcounts would be required to contain overall compensation spending.
Each one percentage point in the public sector pay deal costs the fiscus R6.5bn, or about 0.1% of GDP.
Absa chief economist Peter Worthington said the 3% wage offer is more generous than the 0% assumption that the government embedded into the 2022 budget, which projected growth of just 2.4% in total employee compensation in the financial year 2022/2023, after accounting for automatic pay progression and continuation of the cash gratuity.
Over the past several years, the government has taken steps to contain consolidated compensation costs, which account for 31.4% of consolidated expenditure in 2022/2023 — down from 34.5% in 2019/2020.
According to the MTBPS, over the past 15 years, the consolidated wage bill grew significantly, mostly as a result of above-inflation wage increases.
In the context of slow economic growth, the growing wage bill crowds out spending in other critical areas, including service delivery.
Between the 2020 and the 2021 budgets, the government reduced the medium-term compensation of employees’ baselines by more than R300bn to stabilise public finances.
The slowdown in compensation growth from these fiscal consolidation measures aligns with slower growth in revenue and nominal GDP since 2018/2019.
The report states that future wage negotiations will aim to strike a balance between remuneration increases and the need for additional staff in services such as education, health and police.
Godongwana said in estimating the public-service wage bill over the 2023 medium-term expenditure period, there are two key cost drivers — the remuneration and other employee allowances and benefits, and the number of employees.
“A once-off payment can skew the wage trend in any particular financial year,” Godongwana said. “For example, the once-off cash gratuity allocated in 2021/2022 and 2022/2023 in line with the 2021 public-service wage agreement explains the decline in the 2023/2024 wage bill baseline for most departments.”
“To avoid pre-empting the wage negotiation process, no provisions have been made for wage increases in 2023/2024 though increases will need to remain within the available fiscal resources so as not to compromise other spending priorities,” he said.
He said the offer will be implemented through the payroll system and backdated to April 2022.
Nedbank senior economist Isaac Matshego said the actual increases are expected to exceed the new estimates.
He said the public sector wage bill is 1.6% higher in 2022/2023 compared with the budget 2022 figure, and 3.7% and 3.9% higher in 2023/2024 and 2024/2025, respectively.
Matshego added that wages will increase at an average of 8.4% a year between 2024/2025 and 2025/2026, as the number of personnel in education, health, and policing increases.
“We still forecast a 6.5% increase in the public sector wage bill in 2023/2024, at the top end of unions’ demands, especially since public sector unions have rejected the government’s 3% offer,” Matshego said.
The shortfall in the wage bill will likely be covered by the higher allocations to the reserve accounts, totalling R13.3bn over the next two fiscal years, he said.
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