Treasury director-general Dondo Mogajane said the wage agreement would have an impact on the fiscus, because it was over and above the compensation ceilings that had been tabled in February. Photo: Pando Jikelo/African News Agency (ANA)
Treasury director-general Dondo Mogajane said the wage agreement would have an impact on the fiscus, because it was over and above the compensation ceilings that had been tabled in February. Photo: Pando Jikelo/African News Agency (ANA)

Treasury warns of cutbacks after wage deal compounds its woes

By Siphelele Dludla Time of article published Aug 26, 2021

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THE GOVERNMENT will be tightening its belt further this financial year, as downward risks to the fiscus have materialised after it lost a bruising battle with labour unions over wage increases.

The National Treasury yesterday confirmed to Parliament that the recently signed wage agreement with 1.2 million public servants would cost the fiscus R20 billion in the 2021/22 fiscal year.

Treasury director-general Dondo Mogajane said the wage agreement would have an impact on the fiscus, because it was over and above the compensation ceilings that had been tabled in February.

The government's wage bill accounts for about a third of consolidated spending.

“The risks have finally materialised now. It's not ideal to not give inflation-linked increases, but the reality is that we have come to that conclusion exactly because of this,” he said.

Briefing Parliament's standing committee on appropriations, Mogajane said that work was ongoing with regards to how to address the wage agreement within the current constrained environment.

He said options and recommendations would be discussed by the ministers' committee on the budget and the Cabinet.

“We are trying in very much detail to deal with the challenges on the wage fund,” Mogajane said.

“There are and there should be areas where we can slow down the wage growth, vis-a-vis the performance of the economy.”

Last month, the government and public sector workers struck a one-year deal for a 1.5 percent salary increase, plus a cash payment after months of deadlocked negotiations.

Workers' unions were pushing for above-inflation increments, while the government wanted to freeze salary increases for the next three years to keep the budget deficit in check.

Treasury's presentation yesterday showed that the main budget deficit was worse than expected by R183.9bn, or 4.2 percentage points, of gross domestic product (GDP). However, this was compared to R550bn, or 12 percent of GDP, the previous year.

Debt-service costs, estimated at R916bn over the medium term, were the third-largest spending item by function.

Mogajane said this highlighted the deleterious effect of the Covid-19 pandemic on public finances and the economy.

He said they would continue on a path of fiscal consolidation while providing continued support to the economy and public health services in the short term, without adding to long-term spending pressures.

“Therefore, it becomes very necessary for us to continue on a fiscal consolidation trajectory, at least for now, in order for us to avoid a debt crisis,” Mogajane said.

“That basically tells you that our expenditure should be guarded, visa-vis the amount of debt that we can take on, including avoiding a fiscal crisis.”

But Cosatu spokesperson Sizwe Pamla said the government needed to avoid imposing rigid and rapid deficit reduction targets that limited public expenditure and infrastructure development.

“The source of the macroeconomic quagmire is stagnation and not debt. Therefore, rather than choking the economy with austerity measures, the government needs to implement policies that support economic growth,” Pamla said.

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