Public sector wage agreement to impact economic recovery: Economists

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The public sector wage negotiations are over and most unions are likely to sign a new agreement with government before the end of July.

However, economists warn that the new public sector wage agreement, which will cost the fiscus R18 billion, will have a significant impact on the country’s economic recovery.

Furthermore, South Africa risks being downgraded further. This is after rating agencies warned earlier this year that government’s inability to control spending would lead to more budgetary issues.

All three rating agencies had advised government to freeze public sector wages over the next three years. But government this week agreed on its final offer of a 1,5 percent increase and monthly cash gratuity of up to R1700.

It failed to meet its target of agreeing on a wage freeze, leading to risks of expenditure overruns.

Economist Mike Schussler says government will now have to divert money from other programs to cater for the new wage bill.

“The R18 billion extra money needed to pay the civil servants will come from other government programs, meaning there will be less medicine, less school books or fewer bus subsidies available for government to pay someone. The problem with that is we are finding more money going to salaries and not so much to the service delivery side of things. Our wages are particularly high as a percentage of GDP and is not in line with other developing countries.”

Krige Siebrits is with the Department of Economics at Stellenbosch University:  “Any wage bill bringing expense not budgeted for is a blow to the budget and the credibility of the fiscal authorities. Analysts and market participants probably expected that the government would find it very hard to stick to its guns.  The alternatives would be cutbacks to other budgeted expenditures. Not impossible but it would require careful planning and many expenditure programs are under considerable strain.”

Professor Danie Meyer is with the Department of Business and Economics at the University of Johannesburg:  “We have an overloaded public sector and increases in the wages will have a huge impact on salary and wage bill of the government. Already we have a diminishing tax base and we cannot afford a higher increase in salaries but luckily there is like a mini commodity boom at the moment which is allowing a lot of tax income for government. Currently, the public sector has a 25 percent higher salary on average compared to the private sector. Rating agencies will not look at this very favourably and we could easily have a downgrade as a result of this.”

The South African Democratic Teachers Union (Sadtu) is the only Congress of South African Trade Unions ( Cosatu) union which has accepted government’s offer and is ready to sign the agreement.  Others are still undecided. They have 21 days to make up their minds.

“The Police and Prisons Civil Rights Union, we held our special NEC on the 2nd of July and embarked on consulting our members on the offer that was tabled by government and we noted the offer tabled and as a union we reject it. We were mandated not to sign any agreement and we are left with no choice but to follow the dispute resolution,” says POPCRU’s Richard Mamabolo .

Unions that have rejected the offer only make up 26 percent of the workforce. Government is confident the 51 percent threshold by most unions will be reached in the coming days.

The agreement will then be implemented and it will be binding on all unions, including those that have rejected the offer.

Wage negotiations | Unions still mulling over government’s 1.5% formal offer: