Wage deal imperils South African municipalities’ finances

South African municipalities’ budget frameworks are at risk of being compromised by a three-year deal that granted their workers inflation-beating increases.

Municipalities’ employee-related costs rose 5.2% in the year through June, Statistics South Africa said Thursday in a quarterly report of financial statistics from selected areas. The costs include basic pay, benefits such as medical and pension contributions, and clothing and other allowances.

The increase exceeds an interim 1.5% pay raise agreed by South Africa’s national government and unions representing a majority of civil servants this year.

That’s because most municipalities implemented the first year of a separately negotiated deal that raised annual wages by 6.25% from July last year.

“Not all municipalities have budgeted for these increases,” the National Treasury said in February. “Unless municipalities rapidly improve efficiency, this agreement will compromise the local government fiscal framework and service delivery.”

A succession of government reports has shown the mounting risk the 257 municipalities pose to the nation’s finances. Local authorities’ inability to collect payment for rates and services from residents who are unable or unwilling to pay means they struggle to settle their own bills.

South Africans are scheduled to vote in local government elections Nov. 1.

Read: A business took a failing municipality to court in a landmark case – and now it could happen across South Africa

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Wage deal imperils South African municipalities’ finances