As public-sector workers face a salary freeze over the next three years, the National Treasury has taken a hard line on future wage negotiations, saying it will now ensure it is done in line with the country’s prevailing economic conditions.
It has also dug its heels in on reducing spending on the wage bill, staying on track with cuts announced in the medium-term budget policy statement (MTBPS) in 2020, which effectively amounts to a wage freeze over the medium term.
Proposed reductions to the wage bill amount to R303.4bn from 2020/2021 to 2023/2024, according to the Budget Review. This is slightly lower than the R310.5bn proposed in the medium-term budget.
The proposed reductions now consist of the R160.2bn announced in the 2020 budget and an additional R144.2bn over the medium term. The wage bill will account for R1.97-trillion or 32% of consolidated government expenditure over the medium term.
In 2020, for the first time, the Treasury took steps to make deep cuts to the public-sector wage bill, setting it on a collision course with unions after the state refused to pay increases to workers in the final leg of a multi-year wage agreement.
The gamble paid off and the Labour Appeal Court said the state did not have to adhere to the agreement as it was unlawful, given that the Treasury had not committed the funds needed to pay for the entire agreement.
Unions have, however, applied for leave to appeal the judgment in the Constitutional Court, citing, among other things, the devastating effect it will have on collective bargaining.
The Treasury is emboldened by the judgment as it said in the Budget Review that the Labour Appeal Court reaffirmed its constitutional role in safeguarding public finances.
“In this regard, the approach to future wage negotiations will align with the fiscal position and prevailing economic conditions,” the review said.
This is critical as the state and public-sector unions are set to hold negotiations on the next wage agreement in the coming months. Unions have not yet tabled their demands, but they will be likely to ask for increases above the consumer price index (CPI). A public-sector strike is likely.
Finance minister Tito Mboweni said in his budget speech that Senzo Mchunu, minister of public service and administration, is working with organised labour to achieve a fair public-sector compensation dispensation when negotiations on a new multi-year wage settlement begin later in the year.
The fiscal framework, which will now influence the negotiations, is clear in the Budget Review. The review said narrowing the budget deficit and stabilising the debt-to-GDP ratio requires continued restraint in expenditure growth, with the majority of the cuts coming from the wage bill.
The fiscal framework reduces growth in the wage bill and the share of spending on wages, while sustaining real spending increases on capital payments, specifically for buildings and other fixed structures.
The Budget Review said public-service compensation absorbed 41% of government revenues in 2019/2020 and 47% in 2020/2021.
“Allowing the wage bill to continue rising in line with recent trends is not sustainable. It would require a substantial reduction in funding for capital investment, and critical public goods and services,” according to the review.
The Treasury said the sustainability of the public finances would depend heavily on government’s ability to reduce growth in the wage bill.
The Treasury also said the department of public service and administration is developing measures to reduce the wage bill.
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