Monster confronts Ramaphosa after Zuma fed it

In the public sector wage bill‚ President Cyril Ramaphosa has inherited a monster that has grown out of all control. His ability to tackle it will reveal his political clout within a party that does not want to harm its support base.

So says Institute of Race Relations head of politics and governance‚ Gareth van Onselen‚ in a report titled "The Public Sector Wage Bill: Slaying the Dragon".

Government and unions are currently before the Public Service Coordinating Bargaining Council‚ trying to negotiate a new wage agreement for civil servants.

Van Onselen said: “The negotiations are a litmus test for Cyril Ramaphosa’s administration and the outcome will go some way towards revealing just how much influence the president is able to wield‚ and‚ simultaneously‚ will shed light on South Africa's long-term economic prospects.”

Van Onselen added: “The problem government faces is this: The public sector wage bill is spiralling out of control. As the size of the public service has expanded year in and year out since 1994‚ so the wage bill has grown‚ above inflation almost every year‚ over the same period.”

The report warns the public sector wage bill now constitutes a dangerously disproportionate percentage of South Africa’s balance sheet.

"Unless someone is willing to take a hard line‚ and soon‚ it is set to become the defining obstacle to economic growth."

Warning shots were fired on Wednesday by public sector unions under the Cosatu umbrella at the Public Sector Coordinating Bargaining Council - namely the Denosa‚ Nehawu‚ Pawusa‚ Popcru‚ Sadtu and Sama trade unions. In January‚ workers demanded salaries be increased by CPI plus 3% for the lowest levels‚ with a 2% adjustment for levels eight to 10 and 1% for 11 and 12.

In a statement‚ the unions said they "are fed up with the endless delaying tactics played by the employer at the wage negotiations that are currently under way".

Cosatu said the negotiations should have been concluded before the new financial year kicked in on April 1‚ 2018 but another round of talks was scheduled for this week due to delays.

April 4 was d-day for programming and loading of payment for employees due to be paid on April 15 and those who get paid at month-end in government‚ said Mugwena Maluleke‚ the convener of the Cosatu unions at the negotiations.

"We are warning the employer‚ under the leadership of the minister‚ (that if) the meeting tomorrow passes without any agreement‚ we will be left with no other option but to go back to our members immediately for consultation for a possible shut down of the public service."

A reduction in the number of staff at state owned companies will be also be rejected by Cosatu.

The federation said in a separate statement on Wednesday that it was alarmed at lobbying by the Organisation Undoing Tax Abuse (Outa) for staff cuts at Eskom.

"We are not going to entertain any talk of retrenchments at Eskom‚" the labour federation said.

"Workers should not be forced to pay with their livelihoods for the failures of government. We have seen no tangible steps to address the poor leadership and financial mismanagement at Eskom and the rush to cut jobs and destroy the livelihoods of many innocent workers and their families is an ill-conceived idea."

". . . Cosatu warns government and President Cyril Ramaphosa in particular that his job and investments summits will become redundant if state-owned entities are going to be the ones destroying jobs."

In the February budget‚ the IRR said then finance minister Malusi Gigaba had noted that public sector wages had increased 10.3% annually since 2009‚ significantly higher than the rate of inflation. The IRR report said government spends around R587-billion on its wage bill (32.5% of total spending)‚ and Gigaba warned‚ “some national departments are at risk of breaching their compensation ceilings”.

While "the last thing the African National Congress (ANC) wants is a wage war with unions"‚ years of above-inflation increases have seen the total bill escalate to the point of crisis‚ Van Onselen said.

"And while former President Jacob Zuma‚ who was prepared to wipe out government’s R5-billion contingency reserves to fund the last negotiated outcome‚ knew which side his bread was buttered on‚ Ramaphosa now has a political paradox‚ the solution to which no one is going to like very much.

"It will be one of the first big tests of the Ramaphosa presidency‚ as to what he is willing to concede as the PSCBC finalises its work."

Van Onselen said not even the Democratic Alliance (DA) had an effective plan to tackle the problem of high costs versus votes.

"The party’s solution has been to promise to cut almost R5-billion in expenditure by reducing the size of the executive‚ along with other proposals‚ like a wage freeze (saving it approximately R62-billion). But‚ as is increasingly becoming the case with the DA‚ it contradicts itself. Maimane‚ for example‚ has also promised‚ on May 31 last year‚ to 'double the police force'.

"Going by the numbers in the SAPS 2016/17 annual report‚ that would entail hiring an additional 194‚605 people at an additional cost of around R62-billion‚ which puts the DA’s R5-billion cabinet reduction exercise into perspective and all but nullifies the effect of any wage freeze.

"The DA’s problem is symptomatic of the broader political problem it and the ANC face. On the one hand‚ both parties wish the State to be more powerful and‚ implicitly (in the case of the DA and SAPS) or explicitly (in the case of the ANC)‚ the central employer. But it is a situation South Africa‚ which barely generates any economic growth‚ can ill-afford. And so‚ over the past decade‚ the wage bill has grown and grown‚ to the point that‚ today‚ it is effectively out of control."

Government’s salary tab in numbers‚ with commentary by the IRR:

According to the Treasury‚ the number of full time employees in national and provincial departments currently stands at 1.3 million.

While there has been some growth in the last decade at national level (up from 348‚422 in 2006 to 416‚396 in 2016) the bulk has come at provincial level. Adding those people employed at local government level brings the grand total to over 2-million.

As a result of this growth in personnel‚ the compensation of employees as a proportion of the country’s Gross Domestic Product (GDP) has grown in turn.

"There was‚ over the course of former president Thabo Mbeki’s two administrations‚ a clear downward trend‚ as the proportion was systematically brought from an all-time high of 12.1% in 1996‚ all the way down to 8.8% in 2008. But with the election of Jacob Zuma in 2009‚ it began to grow again and today‚ at 11.8%‚ stands to once again break the 12% threshold.

"But it is not just a quantitative problem: remuneration has grown at a greater rate than GDP.

"Over the past eight years‚ the only exception to this rule – and even then only by a fraction – was 2013‚ when nominal GDP grew at 8.9% while nominal compensation spending grew at 8.2%. Every other year‚ nominal compensation spending outstripped nominal GDP growth. Thus‚ while the country is generating less capital‚ more is being spent on funding the public sector wage bill."

The IRR added that not only is the government the central employer but‚ for most people‚ and certainly the middle classes‚ it is paying higher wages than the private sector.