South Africa is about to blow its budget


South Africa’s government has offered civil servants a 7% pay rise for the next financial year, more than foreseen in the February budget, complicating its efforts to rein in debt.

While unions must submit a formal response to the government’s proposal on Friday, the 235,000-member Association of Civil Servants has already rejected it, wanting 8%. The central bank expects inflation to average 5.4% this year.

While the budget does not prejudge the outcome of ongoing wage negotiations, any settlement not provided for will “require very significant trade-offs in government spending because the payroll bill is a major cost driver,” the Treasury said in an emailed response on Thursday. request.

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He reiterated his commitment to reduce the budget deficit and ensure fiscal sustainability.

Compensation accounts for almost a third of government spending, crowding out spending on other priorities. Rating agencies have designated the wage bill as an ongoing risk for the tax authorities.

Cost of increase

Increasing pay for civil servants at salary levels 1 to 12 by an average of 7% would cost R35.8 billion over the next financial year, according to the Treasury.

The budget review released last month projected annual growth of the compensation account at an average of 2.1% over the six years through March 2026, up from 7.3% in the previous five-year period.

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“While the 2021 public service pay agreement was higher than the budgeted amount, it consists of a monetary gratuity rather than a permanent salary adjustment,” the Treasury said in the review.

The latest increase offer was calculated on a basis that does not include the monthly tip of R1,000, according to economists from Absa Group Ltd.

That means “4.2% of the 7% would be a rollover of the cash tip into retirement pay, while the remaining 2.8% is a nominal increase,” the economists said in a research note on Thursday.

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“The payroll increase for the coming fiscal year was always likely to be much higher than the 1.5% increase the National Treasury had budgeted for consolidated public sector compensation,” they said.

The government implemented unilateral increases of 3% in the current fiscal year after wage negotiations with labor groups broke down, prompting a strike by the National Health and Allied Workers Union.

With elections set to take place next year, the ruling African National Congress may resent further alienation from the trade unions, which have traditionally helped it mobilize support.

Read: Here’s how much is budgeted for Ramaphosa’s salary in 2023 and beyond

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