Trade unions spitting mad over Tito Mboweni's plan to cut wages
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JOHANNESBURG - Finance Minister Tito Mboweni literally threw the cat among the pigeons during his Budget speech last week.
Mboweni left trade unions spitting over the proposed plan to cut public sector wages by around R160billion over the next three years to contain a rising budget deficit.
This at a time when South Africa spends around a third of its budget on the salaries of 1.2 million civil servants
Expectedly, the unions' claws are out as they scramble for higher ground, threatening retribution.
Cosatu went so far as to say the announcement was “an ambush and a declaration of war”, while the Public Servants Association called the move a “continued attack on public servants’ salaries".
Unions are mandated to protect their members interests and it would go against all creation to expect them to do otherwise. It is like asking a pitbull to act like a poodle. Not going to happen.
Union members pay a monthly fee to ensure that leaders move heaven and hell to do so.
And Luthuli House in central Joburg can bear witness to the countless toyi-toying wage marches that seasonally occur.
So international rating agencies were not unreasonable to be sceptical that Mboweni will get the public sector to toe the line.
Already, Moody’s has said there are elevated risks to Mboweni’s forecasts.
Fitch too, said the Budget highlighted the severe deterioration in public finances and the long-term policy challenge of stabilising government debt.
“Fiscal metrics worsened moderately compared with the Medium-Term Budget Policy Statement in October, despite the announcement of significant expenditure cuts,” Fitch said.
“Moreover, these consolidation measures rely heavily on hoped-for moderation in public sector wages, which might not materialise, adding further risks to South Africa’s deficit and debt trajectories.”
The question is: does the government have what it takes to rein in the wage bills?
There are many reasons not to be too optimistic. In 2018 the country was excited when the government announced a zero increase for staff in its employ.
The unions immediately put on their boxing gloves and went on strike.
Within three months, the government had been beaten into submission with the threat of rolling blackouts, a wrecking ball to South Africa’s economy, and offered Eskom unions a 7.5percent pay increase.
So the government was between a rock and a hard place.
It wimped out.
Just as Mboweni surprised the country by generously not increasing personal taxes for South Africans and saving the country from seeing an onerous VAT increase, it is doubtful unions will surprise us by doing the right thing as the country’s economy weakens.
Unions will say that business must foot the debt bill. Why public servants?
Fat cats roam South Africa as glossy monuments to business wealth rise in Sandton. This as the wage gap between the rich and poor grows bigger amid rising unemployment, which fills South Africans with dismay.
However, the reality is that the businesses housed in these flashy façades are struggling. They have been slashing staff and cutting costs to the point that they are withdrawing from the country. Many workers haven’t seen an inflation-based salary increase since the days of that fated dodo. Small businesses are failing too.
South Africa is in the meanwhile fed up with the public sector and its complete lack of performance.
It is also not happy that civil servants believe that their jobs should be guaranteed for life.
Normally, workers know that there is very few get-out-of-jail cards when a company is struggling. Certain principles apply. When times are tough you reduce the wage bill and contain costs-to-revenue.
Public servants do not get this lifesaving principle. Instead of contributing to the health of the country, they continue to demand for more wage increases. It is a huge problem.
Now the jury is out on how the ruling party will handle the situation as it heads into yet another meeting to discuss the impasse.
There will be no winner here.
The National Treasury has recently repeatedly warned South Africa that if it doesn’t get its debt under control, we may have no choice but to apply for a bailout from the International Monetary Fund (IMF) as the country’s spending outweighs the revenue received.
This option is too dreadful to consider. When the IMF comes in, governments are forced to adjust their economic policies.
The structural adjustments become the trade-off for loans to ensure that the country repays the loan.
Greece underwent an IMF bailout and ended up losing control of managing their country. The situation is very similar to state-owned airline SAA entering business rescue - a legal process unions have zero say in.
So public sector unions can either do this the easy or the hard way.
They can listen to Mboweni and comply or risk being left out in the cold.
Either way, the road ahead will be rougher than the misdirected bravado currently taking place.