The remuneration of public servants in South Africa now accounts for 37% of non-interest spending over the medium-term expenditure framework period, says the National Treasury.
In its Medium Term Budget Policy Statement (MTBPS) published on Thursday (11 November), Treasury said that between 2006/07 and 2020/21, compensation spending on the consolidated budget rose by an annual average of 9.9%, from R170 billion to R635.4 billion, while compensation spending by national and provincial departments rose by 9.8% a year, from R153 billion to R570.3 billion.
Inflation accounts for 46% of the increase. Of the rest, 75% was used to raise salaries in the public sector, and 25% was used to increase employment.
“In the long run, compensation spending growth cannot exceed GDP growth,” Treasury said.
“Since 2007/08, however, consolidated compensation spending has grown more quickly than nominal GDP in every year except 2013/14. As a result, public-service compensation absorbs an increasing share of GDP.”
Data shared by the Department of Public Service and Administration shows that there are currently 16 salary bands across the public service, with employees in band 1 earning an average salary of R103,562. By comparison, public sector workers in band 16 currently earn an average of over R2.1 million.
|Salary band||Total number of employees per salary level||Current average salary per salary level|
|2||77 651||R171 278|
|3||69 003||R206 957|
|4||38 663||R247 296|
|5||201 244||R283 227|
|6||129 361||R332 985|
|7||306 703||R411 227|
|8||159 899||R479 868|
|9||99 927||R567 956|
|10||54 510||R710 273|
|11||35 365||R851 022|
|12||27 399||R1 222 246|
|13||7 660||R1 147 609|
|14||2 405||R1 378 620|
|15||528||R1 661 168|
|16||712||R2 130 602|
How wages have changed
Changes in compensation are driven by changes in the number of employees and their remuneration, Treasury said.
Average remuneration rose in nominal terms by just over 8% a year between 2009/10 and 2019/20 across all categories of public servants. In 2020/21, average remuneration rose by 0.4%
This decline in real (inflation-adjusted) wages in 2020/21 was the first such occurrence since at least 2000/01. Nonetheless, the economic impact of COVID-19 and expanded public-health employment meant that compensation spending growth continued to outpace GDP growth, Treasury said.
Between 2007/08 and 2011/12, compensation spending grew particularly rapidly because of the combination of a high rate of inflation, strong growth in personnel numbers and rapid increases in real average remuneration.
By contrast, between 2011/12 and 2019/20, the growth in personnel numbers fell to nearly zero and inflation moderated, while real average remuneration continued to increase by about 2% a year.
The most significant break in these trends is evident in 2020/21, when real average remuneration fell by about 2.4% as a result of the decision not to implement a cost-of-living adjustment for the third year of the 2018 wage agreement.
“Although the wage growth moderation in 2020/21 has helped to make compensation spending growth more sustainable, the extent to which this will continue depends on the outcome of ongoing wage negotiations,” Treasury said.
“It will also depend on whether the Constitutional Court upholds the decision of the Labour Appeal Court, which held that government was within its rights not to implement the cost-of-living adjustment as stipulated in the 2018 wage agreement because the National Treasury had not affirmed its affordability.
The trend of agreements requiring the payment of unbudgeted increases that exceed economic growth suggests that there are serious shortcomings in the system, it said.
“This approach to wage setting does not adequately take overall economic and fiscal conditions into account. It also forecloses on the government’s ability to hire new employees and maintain service levels for public goods. Significant reforms will be needed in due course.”
A hidden cost
One consequence of the stagnation in public-sector employment during the 2010s is that the workforce has aged, Treasury said.
In 2010/11, about one official in four was over the age of 50; by 2020/21, the figure was one in three, with the ageing of the workforce being particularly pronounced in the education sector.
As the rate of retirement increases in the near future, replacing departing officials with younger ones will tend to moderate the rate of growth of average remuneration, Treasury said.
In 2006/07, about 31,000 officials were aged between 60 and 65, with the corresponding figure for 2020/21 being 63,000.
“South Africa’s tertiary institutions will need to ensure an adequate flow of newly qualified graduates to replace public servants as they retire,” it said.
The Department of Public Service and Administration will continue to review the increasing public sector wage bill as the government aims to stabilise the spend on the compensation of employees, the National Treasury said.
“The Department of Public Service and Administration will continue reviewing personnel spending to reduce unsustainable growth in the public-service wage bill.”