Economists said yesterday that upward risks to the expenditure profile included a higher-than-budgeted wage bill.
This as Finance Minister Enoch Godongwana said yesterday that he planned to negotiate with trade unions first before signing a wage increase for public sector employees.
While the Treasury has in the meantime allocated a 3.3% increase in the wage bill over the medium term, Godongwana during his Budget Speech said that, as for the wage negotiations that had just commenced, the Budget did not pre-empt the outcomes.
Meanwhile, public service unions have been fighting for a 10% increase in public service employees’ salaries, and some have refused to engage in new talks regarding the new financial year.
Unions have also vowed to fight if a R1 000 gratuity is unilaterally removed, citing the previous agreement reached in 2021, which said the gratuity had to remain in place until a new agreement had been reached.
The R1 000 cash gratuity was a non-pensionable monthly payment to all public servants instead of pensionable wage increases.
“Nevertheless, this and future wage negotiations must strike a balance between fair pay, fiscal sustainability, and the need for additional staff in front-line services," Godongwana said.
In November, the government tabled a final offer of an effective 7.5% increase to unions amid deadlocked service wage talks.
Unions were demanding a 10% baseline increase and protested for one day in mid-November against the initial offer of a 3% raise.
Godongwana said he expected compensation to public service employees to reach R701.2 billion. In the previous financial year, the government spent R690 billion on the wage bill.
The Treasury said compensation spending would increase from R690↓billion in 2022/23 to R760 billion in 2025/26, growing at an average yearly rate of 3.3%, mainly owing to the carry-through costs of the public service wage increase implemented in 2022/23 – once an agreement had been reached with unions.
“An amount of R45 billion is allocated for compensation of employees over the next three years to provide for the carry-through costs of 2022/23,” it said.
Godongwana said an unbudgeted wage settlement would require very significant trade-offs in government spending, because the wage bill was a significant cost driver.
The Treasury said a public-service wage agreement that exceeded the rate of growth of the compensation budget remained a key risk to the fiscal outlook for the new year. Steps would be required to contain overall compensation spending through stricter headcount management.
“It will mean that funds must be clawed back in other ways. Mainly, this will mean restricting the ability of departments and entities to fill non-critical posts. It will also mean achieving cost-savings from the major rationalisation of state entities and programmes,” Godongwana said.
However, Sanisha Packirisamy, an economist at Momentum, said the cost-of-living pressures and a renewed threat of strike activity by nine public sector unions raised the risks for a higher-than-budgeted wage increase.
“Unions are demanding a 12.5% increase in comparison to government’s offer of 4.7% in FY23/24 (financial year),” she said.
Arthur Kamp, the chief economist at Sanlam Investments, said: “Upward risks to the expenditure profile include the wage bill, which is projected to increase by just 3.3% in current prices per year on average over the period from 2023/24 to 2025/26.”
In the Budget, Godongwana also said that during the upcoming financial year the Treasury would work with the Presidency on concrete proposals to achieve savings by rationalising or closing public entities.
The Department of Public Services and Administration was working with the Treasury and other national departments to conduct a review across the government towards a position of a single remuneration framework that was fair, equitable and sustainable.
“Recommendations will be made to the president and Cabinet, and should form part of the next budget,” Godongwana said.