Government will have to look at new methods to curb its ballooning debts, including the possible introduction of a wage freeze.
This is according to deputy finance minister David Masondo who was speaking at the Private Investors for Africa event on Monday (7 October).
Masondo said that a significant part of the country’s expenditure goes to the government wage bill and bailouts of state-owned companies, with Eskom being one of the biggest recipients of government recapitalisation.
“These bailouts have become unaffordable. Therefore, we have to bring in private-sector participation; and ensure that SOEs that remain in public hands become commercially viable; and rationalise some of them,” he said.
“We also have to look at a wage-freezes starting with us public office bearers at all levels of the state if we are to seriously tackle our looming fiscal crisis”.
Masondo added that it was no longer an option to rely on increased tax revenue which has been hampered by institutional challenges at SARS due to state capture.
“Raising taxes in the context of low economic growth is not an option,” he said.
“Growing the economy is the only option in order to build a broader economic base for revenue generation. Raising revenue will require South Africans to pay for the services they receive from the government.”
High wage bill
Economist Mike Schussler recently highlighted that, including state-owned companies, government’s wage bill accounts for 33% of all wages paid in South Africa, while it only employs around 13% of all workers.
This means that government workers are very well paid – despite the need for taxpayers to constantly bail out state-run companies and departments.
When looking at how these wages have increased over time, Schussler said that government salaries have increased more than inflation, the JSE all share, and the average commercial salary over the past ten years.
One of the factors that can be attributed to these high numbers are the number of departments in South Africa, which was reduced to 39 after the 2019 elections (from 46 before).
According to Public Service and Administration Minister Senzo Mchunu, the chopping and changing of departments is one of the causes of high wages in government, noting that every time cabinet is restructured, the number of support staff needs to be increased to help administer the changes.
Of the 39 government departments, 31 spend more than 30% of their compensation budgets on support staff, when this number shouldn’t be higher than 20%, he said.
He described department and cabinet size as a political issue that is dealt with at the president’s discretion. Previous proposals were to bring cabinet in line with the size it was between 1994 and 2008 (28 departments).