Government’s insane wage bill

 ·5 Apr 2018
Government money

The Public Service Co-ordinating Bargaining Council (PSCBC) is currently in negotiations with government, ironing out the levels of wage and salary increases for the next few years for government and public service jobs.

However, new data published by the Institute of Race Relations (IRR) shows that government’s public wage bill has become so big, that it’s fast becoming the single-biggest problem in the budget – siphoning funding from other vital functions, like service delivery.

As it stands, the government wage bill is almost a full third of the annual budget, sitting at R587 billion.

National Treasury has warned that the size of the public sector wage bill needed to be reined in as departments were starting to hit their “compensation ceilings”, noting further that public sector wages had increased 10.3% annually since 2009, significantly higher than the rate of inflation.

According to the IRR, annual increases in public sector salaries have largely outstripped nominal GDP growth for the better part of the last decade, and have often been much higher than even the private sector in South Africa.

In essence, government – which employs over 2 million people on the national, provincial and local level – is spending more on wages than the economy can keep up with.

“It now comes at a huge cost, so big, that it is threatening the ability of the government to deliver services, as the former Finance Minister indicated in his budget speech,” the IRR said.

The group’s data showed that, over the past eight years, the only time that public wage increases were below GDP growth was 2013, when nominal GDP grew at 8.9% while nominal compensation spending grew at 8.2%.

“Every other year, nominal compensation spending outstripped nominal GDP growth. Thus, while the country is generating less capital, more is being spent on funding the public sector wage bill.”

When comparing the public and private sectors, in both 2015 and 2016, the 8.6% and 7% growth in public sector remuneration was higher than that in the private sector (6.5% and 5.2% respectively) and significantly above the Consumer Price index (4.6% and 6.4% respectively), the group said.

“In fact, since 2008, only once has the change in public sector remuneration been less than inflation – in 2014. Although we only have three quarters worth of data for 2017, the figure, as it currently stands (11.2%) is staggering, at more than double the rate of inflation (5.3%) and more than double the growth in private sector remuneration in turn (5%).

“As a result of these wage sectors (outside of the highest wage bracket in the public sector) the public sector outperforms the private sector in remuneration at almost every level.”

Not only is the government the central employer but, for most people, and certainly the middle classes, it is a better employer: paying higher wages all the way up to the 90th tax percentile.

In 2015, The Organisation for Economic Co-operation and Development (OECD), of which South Africa is a member, produced the following comparative table:

Political will

According to the IRR, while the solution is simple (to either cut increases, or to cut the number of people employed by government), it is not politically convenient – especially in a country like South Africa that has one of the highest unemployment rates in the world.

President Cyril Ramaphosa has alluded to plans to address ‘bloated’ government departments, but he and National Treasury have not, to date, laid out any plans to address the issue.

The president has to toe a fine line, the IRR said, to avoid a war with the unions – while also being cognisant of how international interests, like the ratings agencies, will be closely analysing the outcomes of negotiations.

“The current round of wage negotiations represents a critical test for the Ramaphosa administration. How much remuneration grows, and how much it grows above inflation, will be a determining factor in his ability to turn the economy itself around,” the IRR said.

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