Public-sector wage bill crowds out other areas of spending

According to the Medium Term Budget Policy Statement (MTBPS), public finances are facing growing strains and risks.

“Several years of fiscal restraint have left funding gaps in a number of programmes, reflected in the build-up of unpaid accounts and financial imbalances. Without resolute action and planning to cut wasteful and inefficient spending areas, there is a growing danger that the most vulnerable citizens will suffer the effects of fiscal consolidation.”

The MTBPS stated that the public-sector wage bill has increasingly crowded out other areas of spending, including complementary inputs that public servants need to do their work.

“Infrastructure budgets that are poorly designed or not effectively delivered have resulted in high operating deficits, with insufficient allocations for maintenance. Many departments are delaying paying their bills – a trend that contributes to a rising hidden deficit. Provinces entered 2017/18 with R26.4 billion of unpaid bills from the prior year, and a number of municipalities are in financial distress.”

According to the MTBPS, this situation requires determined action that balances competing demands and interests.

“These trade-offs are particularly stark in the current round of public-service wage negotiations. Since 2011, government has been forced to restrict employee headcount growth to accommodate rising salaries. Yet spending on compensation has continued to grow more quickly than nominal GDP. A fair and reasonable compromise between government and state employees in the current round of wage talks is in the public interest.

The Medium Term Expenditure Framework provides for an overall increase of 7.3 percent a year to accommodate improvements in conditions of service.

“Many departments are already at risk of exceeding this limit, even assuming that personnel numbers do not increase. Moderation in public-service personnel costs is essential if improvements in service delivery are to be achieved.”