Less than a week before the presentation of the medium-term budget, a study has warned that fiscal consolidation is leading to a decline in the quality of public education and healthcare, and is hampering efforts to fight crime.
The report published by the Public Economy Project, a Wits university think-tank, found that reining in public spending and reducing debt has seen real spending on education, healthcare and the criminal justice system fall significantly over the past 10 years.
Michael Sachs, lead author and former head of the National Treasury budget office, said that in 2009 the government spent R20,000 per pupil in the public schooling system, but this had fallen to R16,500 by 2021.
“Depending on the outcome of wage negotiations, and if budgets are not adjusted, this could fall further towards R14,000 a learner,” he said.
Sachs said the picture was similar in the criminal justice system, where spending per citizen had fallen to below R1,700 in 2020 from R2,000 in 2010. Police personnel reached about 200,000 in 2010 but this was reduced by about 15,000 by 2020.
Healthcare spending had also stagnated. In 2012 there were more than 720 healthcare workers per 100,000 uninsured people, but this had declined to 632 by 2018.
"If we are embarking on a strategy to force down the salaries of teachers, police officers and nurses, my argument is that it will have consequences, in particular on the public services on which the poor depend."
“The response to the Covid-19 pandemic saw an increase in spending and employment in 2020. But current budgets imply that increased employment would need to be completely reversed and spending per capita brought to a historic low. Healthcare workers per 100,000 citizens could fall to as low as 590. Given the systemic inequalities within the healthcare system, this shock is likely to be unevenly distributed,” the report said.
Finance minister Enoch Godongwana is expected to continue the fiscal consolidation path of reducing spending and borrowing and narrowing the budget deficit in the medium-term budget policy statement on Wednesday.
At the last budget presentation in February, public debt stood at 69.5% of GDP and was expected to increase steadily over the next three years before stabilising at 75.1% of GDP (R5.4-trillion) in 2024/25.
The budget deficit — the difference between revenue earned and what needs to be borrowed in a financial year — was projected to narrow from 5.7% in 2021/22 to 4.2% of GDP in 2024/25.
Godongwana is also expected to present a progress report on efforts to curb the public sector wage bill as government forges ahead with plans to offer below-inflation increases. This will set the state on a collision path with public sector unions which are closely monitoring the strike at state-owned Transnet.
Sachs said there was a mistaken belief that the public sector wage bill was astronomical. While a large chunk of spending went on paying employees, that didn’t mean the wage bill was bloated as it was dominated by core public service employees such as nurses, teachers, and police officers.
“Bloating, if it exists, is concentrated in political and executive offices, economic regulation, infrastructure services and public administration — particularly finance and co-operative government, which have seen substantial increases in employment in recent years,” Sachs said.
The popular narrative that the state was bloated and the fiscal crisis was caused by unproductive highly-paid public servants demanding higher increases each year was untrue, he said. The government had under the leadership of former president Thabo Mbeki and his finance minister, Trevor Manuel, deliberately taken a decision to increase the number of frontline workers and provide more extensive services, and to increase their pay.
He said that over the last 10 years public sector salaries had increased moderately, especially when benchmarked against the private sector. The headcount in the public sector had not increased as extensively as is widely believed.
“If we are embarking on a strategy to force down the salaries of teachers, police officers and nurses, my argument is that it will have consequences, in particular on the public services on which the poor depend. If we go back to the reason why public sector salaries were raised in the first place, it was because you had a brain drain from the public sector of nurses. We seem to embark on a path that redistributes consumption from the public sector to the private sector,” Sachs said.
The publication of the study comes as members of the Public Servants Association (PSA) prepare to down tools if their wage demands are not met. PSA’s national manager for members’ affairs, Claude Naiker, said the union had given notice of a strike and was finalising its picketing rules after reaching a stalemate with the state.
He said the union took exception to government plans to stop a monthly R1,000 cash gratuity for all qualifying public servants from March 31 next year.
If we are embarking on a strategy to force down the salaries of teachers, police officers and nurses, my argument is that it will have consequences, in particular on the public services on which the poor depend
“In 2020 public servants did not get an increase and they agreed to accept a cash gratuity on a monthly basis starting from April 2021, and it was renewed last year up to 2022. They did not get a salary increase; that is why they got a cash allowance. That will stop in 2023, and the unions are not happy. They want it to continue beyond 2023 until we finalise a new salary negotiation for the next period.”
He said the PSA was taking its cue from the wage agreements at Transnet, where workers settled at 6%, and Eskom, where they received 7%.
“We can’t listen when people say the government has no money when they are subsidising state-owned entities that are failing, yet public servants cannot get a decent increase. Remember, our initial demand was 10% and we lowered it to 6%. They are offering 3% and we are willing to make a compromise to say we accept the 3% increase provided the cash gratuity continues beyond March 31 2023,” Naiker said.
Izak Odendaal, an investment strategist at Old Mutual Multi-Managers, said the Transnet settlement would likely inform the wage talks in the public sector, as would the fact that teachers’ unions have accepted a 3% increase plus the cash gratuity and pay progressions. “A settlement in this region means the government is making some progress towards managing down the growth in the wage bill, but not yet enough to put it firmly on the path to debt sustainability.”
Carmen Nel, economist at Matrix Fund Managers, said she expected the wage bill would be a focus of next week’s medium-term budget policy statement “given that the government has already offered more than was budgeted for in February, albeit that only (teachers’ union) Sadtu has accepted the 3% offer, over and above the 1.5% pay progression and R1,000 monthly cash gratuity”.
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