South Africa Finance Minister Tito Mboweni arrives at Parliament for the 2019 Budget speech. PHOTO: GCIS
South Africa Finance Minister Tito Mboweni arrives at Parliament for the 2019 Budget speech. PHOTO: GCIS

Treasury slashes R27bn in medium term from ‘unsustainable’ runaway wage bill

By Kabelo Khumalo Time of article published Feb 21, 2019

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JOHANNESBURG – The National Treasury on Wednesday took aim at the runaway public sector wage bill, announcing an array of measures to contain it that included the slashing of R27 billion in the medium term.

Finance Minister Tito Mboweni told Parliament in his Budget speech that the bill, which took more than 35 percent of consolidated public spending, was not sustainable.

Mboweni said public servants payments were a major driver of the fiscal deficit.

“The first step is to allow older public servants who want to do so, to retire early and gracefully. This will save an estimated R4.8bn in 2019/20, R7.5bn in 2020/21 and R8bn in 2021/22,” he said.

“In time this will be complemented by limits on overtime and bonus payments as well as pay progression. The system of staffing our diplomatic missions is unjustified and should be reviewed urgently.”

Mboweni said he expected Public Service and Administration Minister Ayanda Dlodlo to outline details of the early retirement framework this week.

In the Budget review statement, the National Treasury data showed that government employee numbers were decreasing at a rate that made it possible to absorb last year’s multi-year wage agreement that overshot the medium-term Budget policy statement by R30bn.

The Treasury said its monthly payrolls in 2018 showed an average of about 16 000 fewer employees than in the corresponding months of 2015. It said it now projected compensation spending to be lower than budgeted for during 2018/19 due to the early retirements. 

The Treasury has demanded that departments “realise permanent savings of 50 percent of the cost attributable to early retirement cases”.

Mboweni said the government would waive penalties on retirement. 

“The estimated cost of this intervention is about R16bn over the next two years, of which a portion will be funded from the contingency reserve, and the balance by the Government Employees Pension Fund,” the Treasury said. “The fund’s contribution will be repaid by the state over a longer period.” 

The Treasury said legislators in Parliament and provincial legislators would not be getting any salary increases this year.

State-owned enterprises (SOEs) were also discouraged from hiking senior management salaries for those who earn R1.5 million or more a year. The Treasury said the three-year public-service agreement negotiated last year had resulted in unbudgeted costs.

“Departments were required to absorb this salary increase within their current compensation ceilings,” it said. “There is a risk that some departments, particularly labour intensive departments, may breach these ceilings.”

Trade federation Cosatu said the salaries and benefits of SOE executives must be capped to the levels of the public service.


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