If you want to be a top earner in South Africa, work for government

In South Africa, between 38%-44% of the top 10% of earners work for the government, says chief economist at Economists.co.za Mike Schussler.

In an analysis posted to social media, Schussler said that this figure rises to 41%-47% of the formal sector when considering the country’s state-owned companies.

“Seeing that the formal sector (is) only about a quarter of the adult population, that translates into 40% of the top 2.5% (of adult earners) are in government,” he said.

The government has allowed the public sector wage bill to bloat significantly over the last decade, to the point that it now accounts for over a third of total government expenditure.

With little room to grow the country’s tax base – and thus increase revenue – the government has no choice but to cut expenditure to balance the country’s books.

Analysts and economists have warned that the government’s plans to cut spending and ease the burden on the economy hinge on implementing its promise to cut wages, which needs support from unions.

The government’s wage bill has been a significant concern for credit-rating agencies that have downgraded South Africa’s sovereign debt to “junk” status.

R415,000 a month 

There are around 1.3 million employees in national and provincial government who received R567 billion in compensation, according to Treasury’s 2019/20 financial documents.

Data from the 2020 Budget shows that the average government worker remuneration passed R400,000 a year in 2019, with this figure heading towards the R450,000 mark in 2021.

This is not spread equally across all public servants, but there has been a clear trend towards public servants being paid a lot more, in general.

Research conducted by market analytics group Intellidex at the end of 2020 found that using inflation-adjusted income bands, there has been a declining share of government personnel earning less than an inflation-adjusted R20,000 per month – from 85% of staff in 2006/07 to 48% in 2018/19 – and a rising share of staff earning above that figure.

The fastest-growing income band consists of staff earning above an inflation-adjusted monthly salary of R30,000. The number has increased over five-fold in 12 years, it said. There has been a twelvefold increase in staff earning between R30,000 and R40,000 per month, and a five-fold increase in the number of staff making above R60,000 per month.

Intellidex said that the increase in top-earners in the public service had been driven by a dramatic rise in the number of medical professionals – overwhelmingly doctors – rather than ordinary public servants, administrators and policymakers.

By comparison, the average formal sector salary in South Africa is R23,122 a month, including bonuses and overtime, according to Stats SA. Research conducted by the Pietermaritzburg Economic Justice and Dignity group found that 56% of South Africans live on less than R1,300 a month.

Increased spending

Total compensation accounted for about 34% of consolidated spending in 2019/20. Between 2006/07 and 2019/20, compensation was one of the fastest-growing spending items, increasing faster than GDP growth.

“By 2019/20 rising compensation spending had become unaffordable and was the main expenditure risk to the sustainability of the public finances,” Treasury said in its 2021 budget document.

“At the general government level – which includes municipalities – South Africa’s wage bill as a share of output is approximately five percentage points higher than the Organisation for Economic Co-operation and Development average – and on par with Iceland and Denmark.”

Treasury said that three main factors had driven the increase in remuneration:

  • The introduction in the late 2000s of occupation-specific wage dispensations produced a significant, one-off increase to the salaries of skilled staff.
  • Annual cost-of-living adjustments to basic pay have generally resulted in compensation rising faster than the rate of inflation – except in some cases where adjustments for senior officials were in line with inflation.
  • A system of wage progression, within-rank increases offered to staff who perform their duties satisfactorily, and promotion between ranks, resulting in a degree of grade inflation.

This has meant that, on average, the public service is now one full rank more senior today than it was in 2006/07.

The impact of grade inflation on aggregate compensation costs is magnified by increases in basic pay for each salary level. Between 2006/07 and 2019/20, average remuneration in the public service more than tripled, from R136,000 to over R415,000.

In inflation-adjusted terms, this represents a real increase of 45% over the period. The rate of growth has been broadly progressive, resulting in the compression of the distribution of wages.

Living comfortably 

The latest Consumer Confidence Index (CCI), published by the Bureau for Economic Research (BER) at the start of September, also shows that South Africa’s high-income consumers are much more optimistic about the outlook for the country, with a large part of this group made up of civil servants.

FNB economist Siphamandla Mkhwanazi said that the public sector wage agreement reached at the end of July, in all likelihood, bolstered the confidence levels of the more than a million civil servants in South Africa most of whom fall in the high-income category.

“Although government employees will only receive a 1.5% increase in their salaries this year, the wage deal does include a non-pensionable cash allowance for civil servants ranging between R1,220 and R1,695 per month until March 2022.

“Since the cash allowances will be backdated to 1 April 2021, government employees will receive a significant boost to their September remuneration.”

The recent uptick in dividend payments likely also boosted the confidence levels of affluent consumers and contributed to their increased willingness to purchase durable goods during the third quarter, Mkhwanazi said.

Read: South Africa’s wealthy taxpayers are leaving in their thousands: CEO

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If you want to be a top earner in South Africa, work for government