The South African government’s recently concluded three-year wage agreement with the public sector unions is an encouraging step towards improving the country’s current tepid potential growth.
The agreement comprised a consumer price inflation (CPI) plus 2% (7% nominal) increase in 2015, followed by increases of CPI plus 1% in each of 2016 and 2017. There were also adjustments to the housing and medical aid benefits.
While the increase is higher than the Treasury had originally budgeted for in 2015, the overall three-year package offers several benefits, namely:
- the three-year package will allow the government to achieve the budget deficit targets that they set out in the February 2015 budget;
- it provides stability for the public sector over three years; and
- it sets a reasonable base for negotiations in other sectors that will take place in the coming months – notably the gold mining sector.
The keys to increasing South Africa’s growth potential in the coming years are controlling the fiscal deficit, boosting electricity availability and reducing the regulatory burden on business. With this agreement, the government has taken a step towards achieving the first of these.
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