South Africa has no money for wage hikes: minister

Public Service and Administration minister Senzo Mchunu says that the government has effectively run out of options when it comes to wage hikes, as the country faces worsening financial problems which will push it towards a fiscal cliff.

Briefing media on Thursday (22 April), Mchunu said that government remains committed to collective bargaining with labour unions, but warned that the government’s hands were tied.

“These are the most difficult negotiations between the government and organised labour which the country has ever faced,” he said, adding that the main issues around the negotiations included:

  • The bad state of the country’s economy;
  • The fact that South Africa is headed towards a ‘fiscal cliff”;
  • Covid-19 and the manner in which it has affected the world at large;
  • Government running behind schedule in terms of the 2021/2022 negotiations due to delays in the previous year;
  • The outcome of the Labour Appeal Court, with labour unions appealing the decision in the Constitutional Court.

Mchunu said that the government is ‘investing a lot’ into these negotiations and is expecting a lot from the outcome.

“(We) are doing so in good faith and with the utmost transparency under circumstances where National Treasury has unequivocally told the cabinet that the state has no money – each proposal by either of the parties must be taken seriously, holistically and comprehensively.”

He added that the government has appointed an independent facilitator to ensure that it succeeds.

“The mandate to him and the team is that they should not take the posture of people who want to win – the country has to win – not government’s team. We need to move away from and avoid separation – there is no ‘us and them’,” he said.


While Mchunu has laid bare the desperation of the government’s position, labour unions have already said that they will not accept a 0%-wage increase offer for the 2021/22 financial year.

The Public Servants Association (PSA), which represents more than 235,000 public workers, said that it will embark on strike action that would see key public servants such as doctors and nurses embark on a strike.

Government is expected to respond to the union’s demands with a revised offer on Friday (23 April), after which further action will be determined the union said.

Finance minister Tito Mboweni’s budget published in February assume an effective nominal public sector wage freeze over the next three years.

The government’s fiscal strategy over the next three years will be to narrow the deficit and stabilise the debt-to-GDP ratio, Treasury said in its budget on 24 February.

Fiscal cliff

Economists have warned government for years that South Africa has been heading towards a fiscal cliff for a number of years  – primarily because of its wage spending.

Better than expected revenue collection meant that South Africa has managed to pull itself back from the fiscal cliff in its latest budget, but the warning signs are still there, said the Fiscal Cliff Study Group (FCSG).

The fiscal cliff is the point where civil service remuneration, social assistance payments and debt-service costs will absorb all government revenue.

In a March presentation, the group said that these three costs took up 55% of  all tax revenue in 2007/08. This increased to 75.5% of tax revenue in terms of the February 2020 budget.

The FCSG said that this neared 100% of estimated tax revenue in the October 2020 MTBPS, but that has clawed back 91% of tax revenue in terms of the February 2021 budget due to a lower than expected shortfall in revenue.

It added that the longer-term outlook for the fiscal cliff barometer remains worrying as it is likely to trend in the wrong (upwards) direction.

To reverse these trends, the study group said that Treasury needs to refrain from helping non-essential failed state-owned enterprises such as Alexkor, Denel, SA Express, and South African Airways.

It added that future austerity budgets are inevitable, as South Africa has not had any austerity budgets over the past decade.

Read: Big public sector strike planned for South Africa

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South Africa has no money for wage hikes: minister