South Africa’s 2021 budget is already facing its first major challenge

Public sector unions are expected to table their wage demands this week as part of the negotiations for the next round of public employee salary adjustments.

This comes after the unions were left reeling by government’s decision to renege on the final year of the 2018 wage agreement, said economists at Stellenbosch University’s Bureau for Economic Research (BER)

“Last week’s budget continued to assume an effective nominal public sector wage freeze over the next three years, but the unions are reportedly planning to ask for an above-inflation increase,” the BER said in a research note on Monday (1 March).

“In addition, they are seeking only a one-year agreement as opposed to the standard three-year deal. It is likely to be a tough and drawn-out negotiation process.”

Radio station Jacaranda reported that the country’s public-sector unions are expected to resume wage talks on Monday.

The meeting will consolidate demands from affiliates of the Congress of South African Trade Unions (Cosatu), the South African Federation of Trade Unions (Saftu) and The Federation of Unions of South Africa (Fedusa).

Budget based on consolidation

The government’s fiscal strategy over the next three years will be to narrow the deficit and stabilise the debt-to-GDP ratio, Treasury said in its budget on Wednesday (24 February).

“Since the 2020 Budget Review, the budget deficit has doubled, and the in-year revenue shortfall is estimated at R213.2 billion.

“These changes reflect the impact of the Covid-19 pandemic, as well as government’s response, which prioritised relief for households and businesses, alongside a major effort to protect public health.

“The consolidated deficit in the current year – estimated at 14% of GDP – is the largest on record.”

A bulk of Treasury’s fiscal consolidation measures will come from the public service wage bill.

“Compared with the 2020 Budget, main budget non-interest expenditure will be reduced by R264.9 billion, or 4.6% of GDP, over the MTEF period.

“Most of these adjustments are to the wage bill. Excluding compensation reductions, consolidated non-interest expenditure grows by an annual average of 0.4% in real terms,” it said.

Treasury said public service compensation absorbed 41% of government revenues in 2019/20 and 47% of revenue in 2020/21.

“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,” it said.

Unions not backing down

Analysis of the 2021 budget from economists and other experts have all pointed to massive downside risks present in the books, particularly around the cutting of government wages.

While the country’s Labour Appeals Court has sided with government on the reneging of the 2018 wage agreements, any change to this – through further court action – would leave government with billions of rands owed to workers in back-pay.

These uncertainties, as well as the wage negotiations ahead, risk destabilising the finance ministry’s consolidation goals.

Unions will also not take the wage cuts lying down.

Federations organised mass protests ahead of the budget – making demands for R12,500 minimum wages, a moratorium on retrenchments, and a plethora of other costly benefits – with indications that there will be more to come, should government proceed with its plans to freeze or cut wages.

Unions have said they will accept nothing less than an above-inflation pay increase in this year’s negotiations, and have threatened further strike action across the country should things not go their way.

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South Africa’s 2021 budget is already facing its first major challenge