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The South African Labor Court is scheduled to hear a wage dispute between the public service unions and the government on Wednesday (December 2), in a case that could prove vitally important to the country’s economic recovery.
The dispute centers on the last year of a three-year agreement the government entered into regarding salary increases for public servants.
The government reneged on the deal earlier this year, denying public servants the agreed salary increase for 2019/20, and Finance Minister Tito Mboweni advanced further in his October budget, announcing that the government will freeze salaries. of public service for the next three years.
The Department of Public Service Administration and the National Treasury argue that continuing to increase public sector wages would be illegal and unenforceable.
“What the South African government and economy cannot afford now, and what is not fair and equitable under the current circumstances, is for civil servants to demand even more wage increases that exceed inflation and outpace the private sector from a base already high, “Mboweni said.
In court documents, the finance minister has also argued that a salary increase could precipitate a fiscal crisis.
Administration and Public Service Minister Senzo Mchunu said the government would be forced to borrow more than R78 billion if the court backs the unions in their fight to get the wage deal implemented.
For its part, the South African Trade Union Congress, the country’s largest trade federation, has warned that the dispute over wages could lead to the breaking of its alliance with the ruling ANC.
Poor track record
Credit rating agencies have cited the deal as one of the key reasons behind South Africa’s latest rating downgrade, indicating that the government does not have the ability to fully control public spending.
The agencies stated that the government’s proposed fiscal consolidation plan is unconvincing and that the plan to freeze public sector wages is unlikely to come about, given its poor record in dealing with unions in the past.
The National Treasury said the government’s policy priorities remain economic recovery and fiscal consolidation, as outlined in President Cyril Ramaphosa’s economic recovery and reconstruction plan and in the medium-term budget policy statement released in October.
“The social pact agreed between the government, companies, workers and civil society prioritizes short-term measures to support the economy, along with crucial structural economic reforms.”
The government has not had a good track record of keeping a cap on public spending over the past decade, said Jan Friederich, Fitch’s senior director of sovereign ratings.
South Africa faces the double challenge of slower growth and rising debt levels, Friederich said on Bloomberg TV. A plan to improve government finances through a public wage freeze could fail, he said.
“If you look back, the last decade, there have always been excesses in wage negotiations, even when the government’s offer was a little more generous than inflation,” Friederich said. “Now a wage freeze in an environment where there is still some inflation is quite a drastic measure. A lot of the savings depend on it and it’s very uncertain. “
Without the state wage cuts, the government would have very little room for maneuver, and the Reserve Bank of South Africa is unlikely to cut interest rates further in the cycle.
The government’s debt projections for the next few years are also deteriorating, and if it chooses to increase spending to boost growth, that could “exacerbate” debt challenges, Friederich said.
“They depend a lot on next year’s salary negotiations,” he said.
Options
As the problem of late payments hinges on the upcoming court battle, Intellidex analyst Peter Attard Montalto has pointed out that the government has options available for the next round of wage negotiations.
In the most extreme case, it can simply impose a solution, he said, if a political agreement with the unions is not possible.
“Mboweni must have had the political approval to publish this salary route, but implementing it would be another matter, and we have never heard the president endorse something like this publicly. It is also unlikely that things will be clearer in February (Budget 2021). “
The public sector wage law court case over this year’s freeze is just starting this week, and is likely ongoing under appeal and will not be resolved in the next budget speech, Attard Montalto said.
“We only see it resolved through the Constitutional Court in mid-2021 with a higher risk of delay. This adds a significant risk of late payment, ”he said. In case the government loses the case, up to R294 billion could be expected in late payments.
“There is a significant risk of a union strike from this perspective. We see the political commitment to this as a very thin role, ”he said.
With union support for the wage freeze failing, Attard Montalto said the government has some heavy-handed options open, including:
- Cut workers, targeting the least productive;
- Impose wages unilaterally;
- Reduce concessions and stop progression and other benefits.
“In general, there is a lot at rest on this issue,” said the analyst.
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