Pietman Roos writes that SA’s fiscal outlook is not like a sports prediction, where the biggest risk of getting it wrong is losing bragging rights among your friends.
Johannesburg - South Africa’s annual economic strategy reminds one of the annual posturing of a once-great rugby team… that then proceeds to disappoint fans once again with its lacklustre performance throughout the season.
As the slight possibility of qualifying for a quarter-final slips from view, fans ruefully remind each other the series was lost through the whole of the year, and not only at the big-ticket games.
This is equally true for economic growth and fiscal policy, even though it’s fair to say that the near-obsessive analysis of sport in South Africa often relegates popular consideration of slightly more important issues like whether our children will have jobs (or electricity, for that matter) to the back benches. The fact remains that between the big-ticket economic events of South Africa’s annual Budget speech, the actual work needs to be done – and three months into the financial year things are not looking great.
The 2015 Budget listed three risks to the fiscal outlook: weak economic growth, a public-sector wage settlement significantly above consumer inflation and additional direct support to public entities.
Despite its best efforts, the government can do little to support economic growth directly in the short term, which leaves the public-sector wage agreement and public entities.
In the past week, the government agreed with the public sector unions to a 7 percent wage hike. The 7 percent is arrived at through adding 2.2 percentage points to the 4.8 percent projected inflation for the year. In other words, public servants will get a pay raise equal to broad consumer inflation plus 2.2 percentage points.
The question that lingers is which side won in the wage negotiation? Some commentators believe the agreement was a good one since there is no clear winner. This may be true for the government and the public-sector union members, but it overlooks the fact the loser may well be the taxpayer.
The euphemistic language of the 2015 Budget effectively warns against the conventionally high wage increase. Regardless, the benchmark is the additional percentage points to consumer inflation as expressed by the projected consumer price index (CPI). So what counts as a significant departure from consumer inflation? And in all fairness, what are a few percentage points between old friends? The answer: it is significant.
By the standards of recent public-sector wage agreements, the latest deal does constitute a significant difference from inflation. In 2011, the 6.8 percent wage increase was an estimated 1.8 percentage points above inflation. The 2012 three-year deal was higher than inflation with 1, 0.2 and then 0.1 percentage points higher than inflation.
In other words, the 2.2 percentage points is the highest wage margin in five years. While 7 percent may seem like small potatoes to an economy used to seeing double-digit wage increases, the problem is the figure is significant, given our relatively low inflation figure and large public-sector wage bill.
The Budget forecast put the growth at the bill at 6.6 percent for the year, which means if the number of public service employees stays exactly the same, the Treasury would have missed its projection by 0.4 percentage points. Incidentally, total government employment had increased to more than 2 million by the end of last year from 1.9 million at the end of 2013 – and there is no indication of a change in the growth trend.
The policy development on public enterprises is also disappointing. The Budget announced that Eskom will receive R23 billion in three tranches through the conversion of state assets and the possible conversion of the Eskom loan to equity.
This was not the first time the announcement was made, although at the time of the October Medium-Term Budget Policy Statement (MTBPS) only R20bn was planned for sale.
Six months after the first official announcement no further official details have been provided. It is safe to say that the MTBPS announcement already went through several rounds of internal discussions before coming close to the podium. This begs the question: how much longer will the investor community have to wait in the holding zone, before it’s time to see some action?
A High Court is hearing a dispute between Comair and SA Airways on whether the public entity can get an extension of a government guarantee. In October, SAA sought the government’s support, two years after it was granted the R5bn in loan guarantees, and this year the Treasury announced that SAA will receive another R6.5bn. This is after the Finance Minister, Nhlanhla Nene, committed in the MTBPS to address financial risks and improve governance at the airline.
Focusing on fractions of percentage points for the public wage bill may look like hairsplitting. And complaining about the lead time for a multi-billion deal could also seem ungrateful. But the problem is that each component of economic policy is significant on its own and even more so combined. The fiscal outlook is not like a sports prediction, where the biggest risk of getting it wrong is losing bragging rights among your friends.
* Roos is a senior consultant at Instinctif Partners.
** The views expressed here are not necessarily those of Independent Media.
The Sunday Independent