For every R10 the government brings in, only R3 is used for actual service delivery: report

The president’s economic advisory panel has warned that public service wages and growing debt obligations are eating a bigger portion of state revenue – citing massive salary increases and rapid progression of government workers as a cause.

Citing the unreleased economic recovery plan compiled by the panel, Rapport broke down how every R10 brought in by the government is spent:

  • R3 goes to welfare and social grants;
  • R3 goes to paying public sector salaries;
  • R1 goes to servicing debt; and
  • R3 goes to actual service delivery.

The paper highlighted how the growing public sector wage bill had reached such a position in the breakdown, noting that the average increase in salaries for government workers over the last few years was 11% – far higher than CPI or what was earned in the private sector.

Another issue was that government workers were elevated to senior positions over the years – from around 10% of workers being top-level employees in 2007 to over 21% in 2017.

Government’s issues with the public sector wage bill have become widely known, with National Treasury making it clear that the state doesn’t have the R38 billion required to honour the 2019/2020 wage increase that was agreed at the last round of negotiations.

Current draft plans for the next three years of wage increases for the public sector have also pencilled in a 0% increase in salaries, with below-inflation hikes for bonuses and other subsidies.

However, this plan is being met with strong resistance by public-sector unions, which have already initiated strike action against the government’s reneging on the agreement, and demanding fair compensation going forward.

Government has also weakened its position on the matter by bailout out failing state-owned companies, say analysts.

According to Intellidex analyst Peter Attard Montalto, government’s commitment to finding R10 billion to bail out SAA for the umpteenth time has shown unions that, given enough political will, it is possible for the state to find funds despite its claims the coffers are empty.

If unions successfully use this line of argument in court, the government could be on the hook for billions of rands in back-pay to workers and also see itself in a much weaker negotiation position for future payments.

Social grants

The other massive portion of income that gets handed out is towards social grants.

During the Covid pandemic, these payments have also increased to assists the most vulnerable to deal with the pandemic, including top-ups on childcare and elderly grants, as well as the introduction of the R350 Covid relief grant for those with no income.

While these are supposed to be temporary relief measures, civil groups have called for these to become permanent – while the government has mooted its own universal basic income grant.

The advisory panel’s document indicates that the introduction of a basic-income grant could cost R243 billion a year and would necessitate tax increases.

Meanwhile, finance minister Tito Mboweni said that National Treasury will fork out about R6 billion to extend the R350 special relief grant for three more months.

The money will be found in the budgets of other government programs by reprioritizing spending and not by increasing overall state expenditure, he said.

Government’s plan

President Cyril Ramaphosa this week presented his economic recovery plan in parliament, which largely ignored the inputs of the advisory panel, and the leaked 100-page document it compiled.

Instead, he adopted a more broad and lofty plan which hinges on a R1 trillion infrastructure drive, among other economic interventions, as well as the creation of 800,000 jobs.

The plan has been coldly received by economists and analysts as being ‘more talk’ from the state, lacking any detail or solid timelines, and sometimes being so unrealistic – particularly around energy – that it undermines the rest of it.

Even among those who embrace the plan completely, there are questions over one key aspect: implementation.

Many argue that government’s track record with implementing its policies – and doing so within budget and without corruption seeping in – is poor, and does not inspire much hope that this time will be different.

Others have argued that any recovery plan will come to naught, so long as the state of disaster remains in place and businesses continue to be restricted by the state’s overzealous grip.

Read: South Africa’s economic recovery plan in a nutshell

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For every R10 the government brings in, only R3 is used for actual service delivery: report