Concerns over controversial ‘finance squeeze’ set to be signed off by Ramaphosa

The Western Cape government has submitted a petition to president Cyril Ramaphosa concerning the constitutionality of parts of the 2020 Division of Revenue Second Amendment Bill.

The bill, which was passed in parliament last week, will infringe on the ability of the provinces to comply with their current contractual and legal obligations to all their employees, the Western Cape government said in a statement on Monday (30 November).

It added that if the bill is assented to by the president, it will impact on provincial revenue allocations in an unlawful and unconstitutional manner.

“Essentially, National Treasury has transferred significant risk to provinces, by pre-emptively cutting our budgets,” the provincial government said.

“This assumes that they will win their court case against the unions on the wage agreement, an assumption which is far from certain.”

“Should government lose that court case, provinces, including the Western Cape, will face a significant and immediate liquidity squeeze as we will have to immediately implement the wage agreement, but without necessarily having funds made available from national government.”

The Western Cape government said that it also concerned with the figure arrived at by National Treasury of a R2.39 billion reduction in its budget.

“We suspect that the numbers have been bungled, and assuming that a wage freeze will hold, we believe that they may have cut our budget by up to R500 million too much.

“Our concerns pertaining to the bill are material and urgent and were raised with the minister of finance, Tito Mboweni, and his officials in Treasury prior to the bill being presented to parliament, to no avail, and despite our repeated attempts to engage with Treasury on ways to resolve our concerns, they were not resolved prior to the bill being introduced into parliament.”

Court case

Key to the Western Cape’s concerns is the wage dispute between public service unions and government, which is set to be heard in the Labour Court this week.

While the Western Cape has highlighted the impact that the case could have on provincial budgets, the outcome could have a much wider impact on the country’s economy.

The dispute centres around the final year of a three-year deal that government entered into regarding public servant salary increases.

Government reneged on the deal earlier this year – denying public servants the agreed-on wage increase for 2019/20 – with Mboweni going even further in his October budget, announcing that the government will freeze public service wages over the next three years.

The Department of Public Service Administration and the National Treasury argue that further increasing public sector wages would be unlawful and unenforceable.

In court documents,  Finance minister Tito Mboweni also argued that a wage increase could precipitate a fiscal crisis.

Public Service and Administration minister, Senzo Mchunu said that government would be compelled to borrow more than R78 billion if the court backs the labour unions in their fight to have the wage agreement implemented.

Credit ratings agencies have also cited the agreement as one of the key reasons behind South Africa’s latest downgrade, indicating that government does not have the capacity to fully rein in public spending.

Read: Businesses will likely support local lockdowns in South Africa – but only if these conditions are met

Must Read

Partner Content

Show comments

Trending Now

Follow Us

Concerns over controversial ‘finance squeeze’ set to be signed off by Ramaphosa