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President Cyril Ramaphosa. If the Ramaphosa administration does not stop salary increases for 1.2 million public servants, a common situation for private sector workers during the pandemic, SA’s financial crisis of public debt and overspending on SA will “just deepen” . (Photo: Simon Dawson / Bloomberg via Getty Images)
President Cyril Ramaphosa’s Economic Advisory Council has urged his administration to freeze salary increases for 1.2 million civil servants. Doing this, the council has argued, will reduce public spending and help grow the economy.
A panel of experts appointed by President Cyril Ramaphosa to write economic policies to revive South Africa’s fragile economy amid the Covid-19 pandemic has endorsed his highly unpopular move to cut the public sector’s out-of-control wage bill.
If the Ramaphosa administration does not halt salary increases for 1.2 million public servants, a common situation for private sector workers during the pandemic, SA’s financial crisis of public debt and overspending “will just deepen,” he warned. the panel.
The warning is contained in a report by the Ramaphosa Economic Advisory Council, which began on October 1, 2019 to identify structural problems and government policy decisions that have hampered economic growth and investment.
The panel, which includes 18 professionals from academia, competition regulation and the private sector, has proposed far-reaching measures to reform deteriorating public finances and restart the economy for growth. (look down). Ramaphosa is expected to present a plan in Parliament on Thursday, October 15 that seeks to counter the economic damage caused by the Covid-19 shutdown.
Among the problems the panel has pointed out is the public sector wage bill, which has been a significant component of public spending over the past decade because public officials have enjoyed wage increases that exceed inflation.
“It would be iniquitous if public sector workers, unlike their private sector and informal sector counterparts, were completely insulated from the impact of the pandemic. Qualified public servants must receive a fair salary to manage and carry out the provision of public services, but whenever possible wage pressures from the public sector must be contained, ”the panel’s 122-page report reads.
“Where tough decisions must be made is on wages.”
Work begins to cut the wage bill
Difficult decisions have already been made because the government decided not to give public officials, including doctors, nurses, teachers and policemen, salary increases of more than 5% in April 2020. This is part of a plan by Finance Minister Tito Mboweni, to cut the public sector wage bill by R160 billion over the next three years. In 2020 alone, the government expects to spend almost 60% of tax revenues (42% in 2019) on paying 1.2 million public servants, only 2.2% of the population.
Along with servicing the government’s debt, which is expected to reach 4 trillion rand by the end of 2020, spending on salaries for civil servants leaves little room for spending on service delivery initiatives, the panel said.
“For every R10 of public spending, more than R3 is spent on transfers [social grants], more than R3 is spent on salaries of civil servants and approximately R1 on [government] debt. The remaining R3 is assumed to cover goods and services and infrastructure.
“We risk that nurses and doctors cannot provide health services due to shortages of medicines, paid teachers but without learning materials or classrooms, police officers at the stations because there is not enough gas to go out on patrol. This undermines the progressive realization of socio-economic rights to health, education and basic services, and will further reduce the efficiency of social spending (which is currently very poor) ”.
The recent freeze on wage increases has angered unions representing public officials, prompting them to go to the labor court to challenge the government’s decision. The unions have argued that the government is contractually bound to the wage increases because they are part of a three-year agreement between the two parties that ends in 2020. The matter is expected to be heard in court in the coming weeks.
Public sector workers turn to the Labor Court for wage increases that exceed inflation
Ambitious debt targets
The panel has urged the government to continue to take a tough stance on wage increases, otherwise its efforts to reduce public debt will be seriously undermined. Mboweni wants to reduce public debt levels from 81.8% of gross domestic product (GDP) in 2020/21 to 74% in 2028/29 through budget cuts. Without urgent intervention, debt-to-GDP levels could rise to 141% over the next decade. But the panel has questioned the possibility of this plan.
“However, it is clear that it is not possible to stabilize the debt in the medium term … it will take much longer. Even if possible, it may not be desirable to force a drastic contraction in spending while the economy is already being hit by the Covid-19 lockdown. “
Read the full report here:
Solving the debt problem will require cutting public sector wages and growing the economy. Growth inducing measures proposed by the panel include:
- Increased investment in electricity generation capacity, in particular lower cost gas, wind and solar generation technologies This could encourage investment of R500 billion and create 50,000 jobs.
- Execute the release of the telecommunications spectrum, which would set in motion a process of reducing data costs and increasing access to data services.
- Establish a clear framework to contain global spending and guide the reprioritization of public spending. The framework should include investments in infrastructure projects. Pension funds and other private investors will support infrastructure projects if there is a clear and profitable portfolio for the next 10 to 20 years. DM / BM
