Public wage bill in relation to SA’s fiscal crisis

FIFI PETERS: There is a looming tools-down in the public sector of South Africa. I’ve read reports that around 800 000 public sector workers could down tools because they’re not happy with the current approach by government – in terms of the latest wage settlement – of ‘take it or leave it’, where government is trying to enforce a 3% wage increase while unions say that the workers they represent want more. But are government workers being unreasonable, given the fact that so much of government’s revenue goes to paying wages. Around a third of the budget goes to paying wages, and we’ve been told it’s one of the fastest-growing line items in the budget, which has been described as ‘over-bloated’.

So are workers being unreasonable, or is there another way that this government can try to be a lot more efficient when it comes to its finances, and try to bring down its staggering debt? We’ve got [on the line] Michael Sachs, who is an adjunct professor at the Southern Centre for Inequality Studies at Wits, but also a former National Treasury official.

Michael, I want to ask you to put that previous hat on, please, as a former government worker. I’d like to understand what you make of the current debate that the wage bill is too bloated, and it needs to come down and come down quite quickly.

MICHAEL SACHS: Thanks, Fifi, good evening to you. I think this is one of those problems in life where ‘right and wrong’ are not necessarily crystal clear because, from the point of view of government and certainly from the point of view of Treasury, there is a fiscal crisis that has to be dealt with and compensation is one of the biggest items in the budget.

When I was at Treasury we followed the strategy of trying to contain the ‘compensation of employees’ budget. The problem is always that what Treasury sets out in its budget documents gets realised only if government as a whole, and in particular cabinet, endorses an agreement with labour that validates those Treasury budget numbers. So, if Treasury budgets in one direction and government is unable to deliver on the wage constraints implied by that treasury budget, the result is that budgets are kept down, wages increase and government is forced to reduce the number of people it employs.

That is essentially the pattern that has happened over the last decade which, in my view, has led to a real erosion of services.

So even right now, if you say our public servants are overpaid and those kind of issues, there’s no really objective way to answer that question, not least because pay is fundamentally related to productivity. So certainly on the one hand I would say that over the last decade, and into and beyond the Covid crisis, public-sector workers’ pay increases, in my view, have not been out of line with those in the general economy.

So from that and now in the last two or three years I think their real income has already been forced down quite substantially in the last two budgets, and we are now in the midst of a very painful price shock, which is particularly hitting more middle-class people [in terms of] petrol and food.

So I wouldn’t want to say that the public-sector workers are wrong or that the Treasury is wrong. They are both right.

In a situation like that it behoves the leadership at the centre of government, in particular the president and those who make executive decisions, to square that circle and find a solution that balances these competing ‘right’ interests.

FIFI PETERS: Definitely not an easy task. But you make really valid points just in the sense of the current economic climate right now, and I think that a 3% wage increase for anyone to be given in this environment where inflation is running at double the cost of that [3%], and we know that the [increased] price of food is in the double digits as it were, it is a pretty tough pill to swallow.

But I’d like to ask one question of you as we talk about this government wage bill. I think that we talk about this government wage bill like foreigners talk about Africa – like it’s just one country and it’s all the same. It’s really not. Chop it up for us. Who gets paid what – from the senior government officials to the nurses who help us with our health requirements, to the police who try to do what they [can] to ensure that crime levels remain low, to the teachers. Who gets paid what?

And, if we’re trying to make this wage bill more efficient, where should we be cutting and where should we be looking to introduce more productivity?

MICHAEL SACHS: Well, first of all I think in any public service, partly because of the nature of the way public services are constructed, there’s likely to be lots of inefficiency.

And so what I’m about to say should not be interpreted to say there is no inefficiency in the public service, but the vast majority of employees in the public services – and I’m talking to you now about the government wage bill, that is the people on government’s payroll, of course local governments, public enterprises, state-owned companies, boards, all of that kind of stuff – [are not] part of government’s payroll directly. And sometimes we conflate these two things together.

But if you look at the people on the payroll, it is overwhelmingly teachers and nurses and police officers and doctors and engineers and lawyers. There is a large number of managers, senior managers kind of, as we might call them, bureaucrats. Their number is large, about 17 000, I reckon. But that’s very small compared to the million people who are actually delivering basic education, healthcare and criminal justice – which are kind of essential services. So there’s no kind of ‘on the face of it’. Of course there’s bound to be inefficiency everywhere.

But on the face of it, if you’re going to reduce government employment in substantial terms, it’s hard to see how you can do that without impacting on those frontline services, in my view.

The other point to make is that, Fifi, I don’t want to go into how much is paid to whom, because I don’t have the numbers right in front of me and I’m afraid I might misquote. I’ve got a paper I can give you that has a table of that.

So one of the things that comes out for who is paid what, is the senior managers in the public sector. I’ve just said [that] overall public-sector workers over the last decade have seen pay increases broadly in line with the economy, which doesn’t necessarily mean that they weren’t overpaid in the beginning. But I’m just saying for a decade we’ve become accustomed to moderate pay increases.

But there are two categories of workers on government payroll that have seen substantial real declines in their income, and the first is managers, senior management, who have seen consistently over the last decade pay increases below CPI. The other is judges.

Now it does so happen that senior managers and judges’ salaries are not determined in collective bargaining.

Everybody else’s salaries are determined by collective bargaining, including the most senior paid cohort of public-service doctors. Their pay goes up with whatever is agreed in collective bargaining, but senior managers and judges have their pay proclaimed by a process that does involve some consultation and, in the case of judges, parliament. But nevertheless it’s not subject to collective bargaining and they have seen a real erosion of pay over the last decade in a period where income at the top of society among executive management in the private sector has been rocketing. So you’ve seen a very large decline in relative pay there.

FIFI PETERS: Michael, sorry, I’m going to have to cut you short – time – but I’m going to ask my producer Kaldora to reach out to you for that note on the breakdown of who gets paid what, and perhaps we can have a lengthier conversation on another occasion. But thanks for taking the time this evening. Michael Sachs is adjunct professor at the Southern Centre for Inequality Studies.

He was talking to the difficulty of this process right now of balancing the needs of government to bring down debt, but also I think the right – I wouldn’t even call it a demand, but request – of workers in this economic climate when things are going up by so much. They are in a cost-of-living crisis to get a wage that keeps up with rising costs on their end.