Collapsing taxes have left South Africa with no other options: Treasury

National Treasury has defended its plans to consolidate and cut down on government wage spending, as it has run out of options to raise money elsewhere.

Treasury officials briefed parliament’s Standing Committee on Appropriations on Wednesday (10 February) to explain some of the budgetary cuts on social programmes in the Division of Revenue Bill.

The chairperson of the committee, S’fiso Buthelezi, raised concerns that much of the fiscal framework of the current Division of Revenue Bill depends on the successful implementation of the freeze on the public wage bill.

In response, Treasury said any attempt to stop the freeze on the public sector wage bill is a risk to the current fiscal framework. “The reality is that the fiscus cannot afford these increases when we are faced with collapsing taxes,” it said.

The committee heard that if the Treasury doesn’t succeed, it will mean that funding will come from the infrastructure fund, which will definitely affect the country’s economic recovery plans that hinge on infrastructure investment.

Treasury’s presentation shows that until the mid-2000s, public-service compensation spending grew more slowly than nominal GDP.

Since 2004, however, this relationship has reversed, and the ratio of compensation spending to GDP has increased to about 11%.

“Since 2006/07, average public-service remuneration has increased at a faster pace than per capita GDP, and is now 4.7 times larger partly the result of slow economic growth and high levels of unemployment.

“Remuneration for employees of national and provincial governments tends to be higher than that of private-sector workers. More than 95% of public servants earn more than the bottom 50% of registered taxpayers.”

Head of Intergovernmental Relations at the National Treasury, Malijeng Ngqaleni, said that the government had to borrow funds to fund the incremental rise of compensation in the public sector over the years. It has now been realised that such an act is untenable given the rise in our debt to GDP ratio, which is alarmingly skewed, she said.

Wage fight 

As part of the 2018 resolution, public sector workers would have received a CPI+1% salary increase in 2020. However, due to the dire state of South Africa’s finances, and the complications brought about by the Covid-19 pandemic, the government was forced to renege on the agreement, instead implementing a wage freeze.

Unions challenged the decision, with the fight going all the way to the Labour Appeal Court in December 2020, where the court ruled in the government’s favour, stating that the resolution was unlawful and therefore could not be implemented.

The last leg of the three-year salary agreement was thus not implemented by the state and the Labour Appeal Court indicated that it was not fair and equitable for the state to pay the salary increases amidst the current economic climate.

However, the unions said they were not done with the fight, and have decided to take the matter to the country’s highest court.

Read: The good and bad news for South Africa’s rand

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Collapsing taxes have left South Africa with no other options: Treasury