JOHANNESBURG – The Minister of Finance Tito Mboweni attacks the South African workers on a number fronts, firstly he granted no relief to prevent the bracket creep to protect the purchasing power against the harmful effects of inflation. By doing this, the government takes an additional R12.8 from workers.
Workers will be challenged with the full force of bracket creep. In practice, the annual salary increases of workers will probably cause many workers to migrate into a higher tax bracket and finding themselves being taxed significantly more.
For example, Jabu as a public servant earns R411 000 a year, the tax bracket is R305 851 - R423 300 meaning he pays R63 853 + 31% of the amount above R305 850. Jabu has experienced bracket creep, which happens when inflation drives income up and into higher tax brackets. As a result, Jabu’s trade union negotiated for a 7.5% salary increase which is R30.825 move him to a higher salary of R441 825, but after factoring in the effects of inflation and the higher tax rate, Jabu receive no real increase in his purchasing power.
Within this context, workers contribute R552.9 billion, when personal income tax is deducted from their salaries, and then pay value-add tax R360.5 billion, in contrast to corporate income tax that adds a smaller amount of R229.6 billion. The Standing Committee on Finance should change the decision and introduce adjustments to personal income tax tables and brackets so that bracket creep does not occur.
The 2019 budget framework stipulates two areas that could be interpreted as another open attack on state-owned companies (SOEs) and the public sector workers. Minister Tito Mboweni maintains that the reconfiguration of SOEs critically needed, as well as the downward management of the public sector wage bill.
Minister Mboweni declared that the public wage bill is unsustainable and it is, therefore, critical to shift expenditure to investment. To implement the public wage bill strategy, the National Treasury will reduce the national and provincial compensation budgets by R27 billion over the next three years. It was emphasised that older public servants will be targeted first through early retirements, while other workers could be offered voluntary packages to exit the public service. The government predicted that this initiative will save an estimated R4.8 billion in 2019/20, R7.5 billion in 2020/21 and R8 billion in 2021/22. The Budget Review 2019 stipulates that compensation accounts for more than 35 per cent of consolidated public spending and has been a major driver of the fiscal deficit.
The government argues that the monthly payrolls of 2018 illustrate that an average of about 16 000 fewer employees than in the corresponding months of 2015 is employed by the government. Minister Mboweni replied that new employees tend to be younger and lower ranked than employees who are leaving. Furthermore, overtime and bonus payments, as well as pay progression will be limited.
Research conducted in December 2018, illustrates that there were 126 710 public service employees between the ages of 55 and 59 years old. It is, therefore, argued that this intervention is expected to save an estimated R20.3 billion over the 2019 MTEF period, assuming that 30 000 employees take up the offer.
Finance linked to once-off penalties and other retirement-related costs is estimated at approximately R16 billion over the next two years, a portion will be funded from the contingency reserve, and the balance by the Government Employees Pension Fund (GEPF). The GEPF’s contribution to the once-off penalties and other retirement-related costs will be repaid by the government over a longer period.
The Department of Public Service and Administration has announced a change to performance bonus payments, which amounts to R2 billion per year. Government proposes to progressively phase out this bonus over the next four years and to replace it with other performance management measures. Additional measures to contain the wage bill, including active management of overtime and progression payments, are under consideration.
Workers in SOEs like SAA, Denel, Eskom are also under pressure could retrenchment. SOEs face negative cash flows; they are financing operations from debt and are worryingly close to default unless the government introduces a massive recapitalisation programme. Eskom has experienced serious operational failures and load shedding was introduced which is very harmful to the economy. The Road Accident Fund (RAF) faces increasing liabilities which is expected to reach R413.8 billion in 2021/22.
The government argues that weak revenue growth and high compensation costs associated with overstaffing is one of the reasons, responsible for the state of SOEs. Moreover, borrowing debt-service costs from a decade-long debt accumulation, today weighs profoundly on the profitability of SOEs.
The Minister of Finance reiterated that these reforms are aimed at restructuring sectors in response to changed economic conditions, restoring good governance, bolstering operational efficiency, and strengthening financial controls and planning. However, the workers complain that they carry a heavy burden and the government has allowed that corruption and state capture is widespread.
Dr Dennis George is the secretary-general of Fedusa, but writes in his personal capacity. The views expressed here are his own.