The Treasury has made it clear that government departments will have to find the money to pay the extra R37.4bn needed to fund the latest public service pay deal by shedding jobs, cutting programmes and tackling exorbitant pay increases in public entities that receive public funds.
In a statement on Friday evening after unions representing public sector workers signed a two-year pay deal with the government that will give them a 7.5% increase this year, the Treasury said it will not increase government borrowing to fund unbudgeted wage increases.
It outlined a series of measures that would be “aggressively” pursued to prevent this, including restrictions on hiring and “headcount attrition”. It will also allow departments to delay projects and programmes already budgeted for to pay for higher wage costs.
The two-year wage settlement provides for a 7.5% increase for the first year, which started on April 1, followed by an increase in line with consumer price inflation for the second year. In practice, however, the first year’s increase is just 3.3% because it wraps in the two-year-old R1,000 monthly cash gratuity, which the government had intended would fall away once a new wage settlement was signed.
The agreed increase is still much higher than the 1.6% for 2023/24 that finance minister Enoch Godongwana pencilled into his February budget.
He said he did not want to pre-empt the outcome of the pay talks but warned that unbudgeted increases would require “very significant trade-offs in government spending because the wage bill is a significant cost driver”.
The government has pushed back against union demands over the past three years in an effort to put an end to more than a decade of above-inflation wage settlements, which have driven the public sector payroll up to unsustainable levels. And February’s budget committed to keeping the lid on public spending over the medium term to stabilise the debt level.
Trade-offs
The Treasury said that government would initiate processes to ensure that the latest wage agreement was implemented through significant trade-offs in the short term and over the medium term.
As much as possible of the increase would be contained within the ceiling in the budget by restricting recruitment of non-critical posts, so that headcount attrition would cushion the blow of the wage agreement. Recruitment would also be restricted in other areas.
Treasury also pointed to “rationalisation measures” and pay curbs not just in the government but in SA’s more than 180 public entities. It is particularly targeting exorbitant pay packages in public entities that rely on transfers from the government and don’t raise much of their own revenue.
Sanlam Investments economist Arthur Kamp said at the weekend that the Treasury had little choice but to offset as much as possible of the wage increase to ensure it did not add to the deficit. Its approach was the right one, but ultimately fiscal consolidation would not succeed unless SA could lift its growth rate.
Friday’s wage agreement, which Business Day has seen, was signed by public service & administration director-general Yoliswa Makhasi and leaders of the Health & Other Services Personnel Trade Union of SA, National Professional Teaching Organisation of SA, the Public Servants Association and SA Democratic Teachers Union.
The four unions combined represent more than 53% of the estimated 1.3-million public servants in the country.
Department of public service & administration spokesperson Moses Mushi said the 7.5% increase was effectively the R1,000 after-tax cash gratuity at the value of 4.2% on the baseline, and a nominal increase of 3.3% across the board. The after-tax cash gratuity was set to expire on March 31.
“The non-pensionable cash allowance will be translated into the pensionable increase on the baseline with effect from April 1 2023, without disadvantaging any employee in terms of the cash net effect into the pocket,” Mushi said.
Inflation
The pay deal also includes a pay progression of 1.5% for all qualifying employees and in the final year employees will receive an increase linked to projected consumer inflation, meaning if the consumer price index falls below 4.5% in 2024/25, workers will receive increases of 4.5%.
If it surges above 6.5%, the employer will implement a 6.5% increase.
Public Service Co-ordinating Bargaining Council (PSCBC) general secretary Frikkie de Bruin said the National Education, Health & Allied Workers Union, Democratic Nursing Organisation of SA and SA Policing Union “opted not to sign the agreement as per the mandate given by their members”.
Dispute
These unions are still in a dispute with the employer regarding negotiations for the 2022/23 financial year, where the employer dismissed their demands for increases of 10% and instead unilaterally implemented a 3% pay rise.
De Bruin said: “The PSCBC applauds parties to council for their commitment to the wage negotiation process, which resulted in the signing of the agreement before the commencement of the new financial year. The signing of the multi-term agreement allows for some stability to focus on implementing various PSCBC agreements, including the public sector summit agreement.”
Update: April 2 2023
This story has been updated with new information.
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