Financial services group Absa has published its preview of the 2022 Medium Term Budget Policy Statement (MTBPS) and forecasts a revenue overrun relative to the 2022 budget target of R87 billion.
It forecasts the main budget deficit for FY22/23 of R317 billion, or 4.7% of GDP.
This, the group said, compares with its 4.9% forecast in the July Quarterly Perspectives and the 6% of GDP that National Treasury forecast in the February 2022 budget.
Minister of finance, Enoch Godongwana, will table the Medium Term Budget Policy Statement in Parliament on Wednesday, 26 October 2022.
“The MTBPS could pencil in a slightly higher trajectory for overall public sector compensation since the government has departed from its 2022 budget assumption that there would be a 0% pay increase,” Absa said.
“Specifically, we expect the MTBPS to embed a pay deal of 3% – on top of the 1.5% notch progression and the R1,000/month post-tax cash gratuity – even though not all unions have agreed to this latest wage offer,” it said.
“We also expect the MTBPS to provide only the broad outlines of the government’s approach to the long-awaited Eskom debt deal. The MTBPS will also likely indicate the government’s intentions for the Social Relief of Distress grant, which is scheduled to expire at the end of the current fiscal year.”
The country has been beset by strike action in recent months, mostly relating to wage disputes, while rising living costs thanks to increased interest rates, and rising inflation are also a point of concern for unions and their members.
Bloomberg reported South Africa’s work days lost due to strike action rose more than 30-fold in the six months through June compared with the same period a year earlier, driving up wage settlements between labour unions and companies.
South Africa lost 1.6 million work days due to industrial action in the first half of 2022, up from 45,000 in the prior year, data in South African Reserve Bank’s Quarterly Bulletin published last week showed.
The increase in working days lost, particularly in the second quarter, was driven by a prolonged wage-related strike at a large gold-mining company, the central bank said.
Dissatisfaction over pay was the biggest cause of industrial action in the second quarter, accounting for 99% of work days lost and 85% of strikes, the central bank said, citing data from Andrew Levy Employment Publications. That drove the average wage settlement rate agreed through collective bargaining up to 6.1% in the first half of 2022, from 4.5% a year earlier, it said.
“Despite the increase, the average wage settlement rate was still below the average headline consumer price inflation rate of 6.2% in the first half of 2022,” the central bank said.
A generous offer
Acting minister of Public Service and Administration (DPSA), Thulas Nxesi and finance minister, Enoch Godongwana, recently published a note on the state of public service wage negotiations.
“The government’s position, as the employer and the custodian of the national fiscus, is fully engaged with the issue of the rising cost of living, including in respect of public servants. Nevertheless, the government is primarily responsible for ensuring the wage bill is sustainable, in the context of maintaining a healthy national fiscus.
“This is imperative to ensure that there is sufficient resources for funding South Africa’s development agenda, whilst avoiding sinking the country into a debt hole and unsustainable fiscal deficits,” they said in a joint statement.
And despite the prevailing difficult fiscal position, the government believes the 3% salary increase offer to public servants is “generous”.
Government, they said, is grappling with a “balancing act” between wage increases and additional headcounts, saying “there’s always competition” between the two.
“Higher than inflationary or unaffordable adjustments on the salaries of the current public servants would mean that there’ll be less money available to increase headcounts in critical frontline services.
“The State capacity in Education, Police and Health has not been increasing in line with the growing population over the years, while wages have increased by an average of 2% above CPI between 2008/09 and 2019/20.”
As an example, the ministers said, the average number of learners per teacher in public ordinary schools decreased from a ratio of 32.3 in 2015/16 to 31.4 in 2021/22, while the number of police officers per 100,000 population decreased from 260 to 236 during the same period.
The number of nurses per 100,000 uninsured population also decreased in this period.
“It is for this reason that additional allocations amounting to approximately R50 billion over the 2022 MTEF were made available to Education, Police and Health to address the wage bill spending and service load pressures.
“Therefore, it becomes imperative that the current and future wage agreements strive to strike a balance between remuneration increases and the need for additional headcounts in frontline services in order to keep up with the increasing demand for public services.”
Labour union demands
Initially, unions demanded a 10% across-the-board increase for this financial year. If acceded to, it would have cost government around R49 billion.
The ministers said the government proposes that employees continue to be paid a non-pensionable cash gratuity, an average of R1,000 after tax to all employees across salary levels 1-12.
“This amounts to an average of 4.5% of the R20.5 billion allocated for salaries in the 2022/23 compensation budget. Organised labour rejected this offer.
Employer’s current and final offer
And following several improved offers and rejections from unions, the government’s offer on the table is as follows:
A 7.5% increase offer packaged as follows:
- The continuation of the current non-pensionable cash allowance of R1,000 for this financial year across all salary levels; and
- A pensionable increase of 3% across the board.
“We have continued to ensure that public servants are reasonably cushioned against the rising cost of living, without crowding out social expenditure. It is a difficult balancing act. Therefore, the misinformation being peddled by some unions in the media is not only unfortunate but also very opportunistic and disingenuous,” the ministers said.
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