The National Treasury has indicated a measure of willingness to fund a budget shortfall in the event that the government loses the court case in the public sector wage impasse. Photograph: Phando Jikelo/African News Agency(ANA)
The National Treasury has indicated a measure of willingness to fund a budget shortfall in the event that the government loses the court case in the public sector wage impasse. Photograph: Phando Jikelo/African News Agency(ANA)

Treasury willing to fund wage shortfall

By Siphelele Dludla Time of article published Feb 5, 2021

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JOHANNESBURG - THE NATIONAL Treasury has indicated a measure of willingness to fund a budget shortfall in the event that the government loses the court case in the public sector wage impasse.

This is a move that could push the country’s fiscus over the precipice as the main budget deficit is now expected to be R707.8 billion, or at 15.7 percent of the gross domestic product (GDP).

At least three public sector unions on Monday approached the Constitutional Court for leave to appeal an earlier Labour Court judgment after the government reneged on implementing wage increases.

The Labour Court last year declared the 2018 wage agreement as invalid and unconstitutional, favouring the government in its decision to not honour the wage agreement.

In response to the Western Cape provincial treasury, Finance Minister Tito Mboweni said the national government would cover the increase in the cost of compensation of employees in provinces.

“I wish to state that if the court orders the collective the agreement be implemented, or a settlement agreement that requires that additional funding is reached, the National Treasury will make recommendations to Cabinet for the introduction of the required draft legislation in Parliament to provide for such funding,” Mboweni said.

This goes against what Mboweni said during his Medium-Term Budget Policy Statement (MTBPS) in October where he announced drastic expenditure reductions within the non-interest expenditure category.

Mboweni said provincial equitable shares would be slashed by R60bn in the 2021/22 financial year and R12.1bn cut from conditional grants over the medium term.

He said that while expenditure reductions would be wide and deep, the bulk of the adjustment would be absorbed in compensation costs.

Mboweni said no additional funding was available over the medium term, adding that departments needed to fund shortfalls by adjusting their compensation baselines.

He said the government would reduce the compensation of employees by R36.5bn mainly from a freeze on salary increases.

Over the past five years, public sector employee compensation grew by 7.2 percent a year on average – well above inflation.

Currently, some 35 percent of all government spending goes toward civil service salaries.

Old Mutual Investment Group’s chief economist Johann Els said the latest figures from the National Treasury

show that we’re heading for a budget overrun this year.

Els said that this was mainly because of higher-than-anticipated tax revenue last year, with the surplus possibly amounting to as much as R106bn.

He said the government might, instead, want to use this revenue to reduce the budget deficit as part of its fiscal consolidation plans.

“We were told last year that tax increases this year would aim to raise another R5 billion, which is small in the bigger scheme of total tax revenue. So, that is not unexpected or unreasonable,” Els said.

“If anything, a budget overrun would be a welcome boon for the government to tackle the coronavirus through a comprehensive vaccine programme effectively.”

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