The ANC’s need to boost electoral support, particularly at a time when there is unrest and possible strikes in pay disputes, will make fiscal consolidation more challenging ahead of the budget this month and the national elections, economists say.
In its economic research report released on Monday, Absa said that unprecedented electoral pressure on the ANC — recent polls such as those conducted by the Brenthurst Foundation in late October and early November suggest the party could lose its majority — would seem to “raise the risk of populist policies” and force the government to grant a public sector pay hike.
“We believe the government will have to concede a public sector wage hike in the 2023/2024 financial year that offers a degree of catch-up after the government unilaterally imposed a 3% wage settlement for the current fiscal year,” said Absa chief economist Peter Worthington.
Even though SA’s fiscal position improved over the past few years, with the budget deficit narrowing sharply from almost 10% of GDP in the 2020/2021 fiscal year to forecasts of about 5% in the present fiscal year, analysts warn that there is likely to be slippage on the wage bill, which will in turn increase the deficit.
According to Absa, the government’s unilateral imposition of a 3% wage settlement for the current fiscal year was “unrealistic”.
Finance minister Enoch Godongwana pencilled in a 3% increase for public sector wages in the medium-term budget statement policy in October.
At the time, the minister said the offer was in the best interest of the fiscus and public service workers, stating that the increase translated into an average of R1,000 per employee per month until March 2023 and a pensionable salary of 3%.
The increase was much lower than unions’ initial demands of 12% to 13.5%, and lower than amended demands linked to the consumer price index, which rose to a 13-year high of 7.8% year on year in July before easing to 7.6% in August. According to Stats SA, inflation for 2022 posted at 6.9%.
“In contrast to the MTBPS’s unrealistic assumptions ... we have conservatively pencilled in a 5.5% all-in rise in public sector pay,” Worthington said.
The report also notes other upside spending pressure and downside revenue risks likely to manifest.
On the revenue side, intensified load-shedding it said was likely to weigh on tax collections, especially corporate income tax (CIT), “as companies’ profitability suffers from sharply escalated spending on backup power ... and softer export commodity prices weighing on mining houses’ CIT payments,” Worthington said.
“Moreover, intensified load-shedding is also likely to hit consumer spending, and hence, VAT and other consumption-related tax receipts to a degree,” he added.
On the expenditure side, further bailouts for loss-making state-owned enterprises — including the Eskom debt deal — remain on the cards.
The government also announced that it is working on a support programme to help households and small businesses with the costs of load-shedding.
The dissatisfaction with the ANC and the government’s handling of load-shedding, which has manifested in increased protests and the launch of legal action against the government over power supply, is mounting and could further weigh on its political support.
Worthington said that the unprecedented electoral pressure on the ANC would seem to raise the risk of populist policies, as evidenced by President Cyril Ramaphosa’s recent statement that he had asked Eskom not to implement the regulator’s approved tariff increase for the utility.
“He later had to walk back from that when it was pointed out that such a step would be illegal,” Worthington said.
American agency Fitch Solutions, a research wing of Fitch Group, also raised the national elections as a potential stability risk.
Speaking at a webinar in January, Fitch Solutions senior analyst for Sub Saharan Africa Gianmarco Capati said Fitch’s short-term political risk index has shown that recent quarters in SA have seen an increase in political instability and uncertainty about policy continuity.
He said the index shows that the increase in divisions within the ANC will further weaken its electoral appeal ahead of the May 2024 general elections where “we expect the ANC to really struggle to obtain the majority after years of declining popularity.
“So we believe that the government will remain committed to the reform agenda in the coming quarters including the reforms in the ailing power energy sector, but we think the need to boost electoral support, particularly at a time when there is a lot of unrest and strike action in the pay disputes will make fiscal consolidation more challenging ahead of the vote,” Capati said.
He said Fitch thinks that for the strikes, and the desire to appease the electorate, “the ANC-led government will probably push to increase wages by something closer to inflation which we see averaging 5.5% in 2023”.
zwanet@businesslive.co.za
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