The message is permeating through the government that come 2020, budget cuts will be made.
The instruction to departments to prepare scenarios in which their baseline funding is cut by 5%, 6% and 7% from 2020 to 2023 has helped focus minds on the tight fiscal position. So has the message to the ministers’ committee on the budget that the Treasury is looking for a cut to the budget about the size of 10% of the government salary bill.
But how much can really be cut?
Some things can’t be cut at all: social grants; the R130bn set aside to rescue Eskom over the next three years; and debt-service costs. It is also really difficult to cut the budgets of education and health.
Though some wastage could be eliminated in departments and at head offices, the number of teachers or health workers cannot be cut without serious consequences. The same goes for police. In a presentation to parliament last week, SA Police Service management told MPs a 5% cut to the police budget would mean 23,000 fewer police over the next three years.
Neither can goods such as medicines and schoolbooks be easily rationed. It would be equally undesirable to cut funds for school feeding schemes when half the population lives below the poverty line.
This is the problem the Treasury sits with in drawing up the medium-term budget policy statement to be tabled in October. If no cuts are made, the deficit for 2020/2021 will hurtle towards 6.3% on Intellidex’s latest calculations. Intellidex analyst Peter Attard Montalto, who has analysed the numbers, calculates that once the “uncuttables” are excluded, the Treasury could perhaps achieve a 2.1% reduction on baseline spending.
Recent exercises in cost cutting by the Treasury have centred on infrastructure spending. Since 2017 municipal infrastructure grants, housing budgets and school building programmes have all taken cuts. The land-reform budget has also been shrunk.
These had to be made to make way for spending commitments on free higher education, an unfunded political promise made by former president Jacob Zuma, and public servants’ salaries, which, after the wage settlement in 2018, again came in higher than budgeted.
Cuts to infrastructure spending are bad for growth as well as service delivery and have been justified by the Treasury in the past on the grounds that these funds were consistently underspent.
This time the focus seems to be squarely on personnel.
Between 2008 and 2009 and 2016 and 2017, compensation spending grew 37% in real terms — or about 4% a year above inflation. Since then, wage settlements have also come in above inflation at about 2% in real terms. Numbers of public servants also rose steadily until about 2017. Over a decade the administrative and management strata ballooned as jobs for pals became endemic in the Zuma administration.
So how to make these cuts?
In 2012, the Treasury imposed an expenditure ceiling on departments, forcing them to remain within their baseline allocations even when personnel costs rose faster than the baseline due to successive generous wage settlements. The result was that personnel growth was eventually curtailed and by 2017 numbers began to fall. Since the 2018 settlement, early retirement has also been mooted as a way to reduce numbers.
Both of these are strategies that avoid a negotiation with labour. They also don’t lend themselves to creation of a public service fit for purpose or suited to service delivery. Now negotiation cannot be avoided.
It is pretty clear that when it comes to wage negotiations, labour always wins. Cosatu’s alliance with the ANC always trumps the government’s role as employer. Labour also wins because they are better negotiators, and are unified and bargain as a unit.
But there are enormous differences among the employees of the state. Some are professionals in front-line service; some are management with a high degree of specialisation; some are management with no specialisation; some are administrative with few skills or specialisation; and some are general workers with a low level of skill.
The government needs to seek a bargain in which the people most needed to run state services are protected while those who are least required are reduced. As those who are needed are far more than those who are not, a bargain like this is in the interest of most union members.
If the government wants to make some progress with cutting the wage bill, it must start segmenting its employees. It is also a far better strategy than going to war with all of them all at once.
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