The Budget Speech – an important time for South Africans and South African businesses in general. Shedding light on where we are as a country in terms of finance and what we can expect to happen during the next financial year.
It is vital information to have so you know how to prepare your business for what is to come in the business sector and make sure you plan accordingly to keep your business up and running fully.
In case you missed it, here is a summary of the events:
- The Finance Minister Mr Tito Mboweni announced on Wednesday, 26 February 2020 in the Budget Speech that much intervention is required to address the cost of wages in the public sector and has proposed reducing the public sector compensation bill by R160 billion over 3 years.
This has been welcomed by many, but the trade unions are not happy.
- One of the reasons the trade unions are unhappy is that the public sector employee compensation has remained at about 35% or so of the total expenditure over the last decade, wages are not the problem.
Looking closer, it seems that their statement is debatable and that the Minister is in fact accurate. The reason being is that the trade unions are referring to how much wages are as a ratio concerning other public expenditures.
However, the Minister is referring to affordability, which is an expenditure item relative to government revenue. If we had to accept the unions’ argument as a good measure, the government could just spend R200 billion more on goods and services funded through debt and the ratio of wages would, as a result, be corrected.
- When compared to tax revenue collected over the last 12 years, another reality emerges. The public sector wage bill has not remained constant and has grown from just over 30 percent to over 40 percent. When compared to GDP, it has consistently grown from 10,29% in 2001, to 10,73% in 2011 to 12,3% in 2021.These increases might not appear large, but one must consider that that GDP equates to approximately R5.4 trillion. The wage bill has been tracking government expenditure growth at over 10% per annum.
This represents enormous growth in the affordability of the public sector wage bill as it relates to what government can afford and to what the country can afford.
- The latter criteria of productivity are a lot more difficult to address given the lack of effective and transparent productivity measures in the public sector. Some have tried to analyse productivity like ‘Prophet Analytics’ in their 2012 quarterly Labour Market Navigator found that private sector employee productivity was 450% higher than in the public sector employees. In 2015 the Financial and Fiscal Commission found that the government was not doing enough to provide services “efficiently, effectively and economically”.
The Minister, in 2019, and this year in 2020 concedes as much, stating this year that civil servant’s salaries have grown by 40% in real terms but without the equivalent increase in productivity. These may all be persuasive rather than conclusive factual findings as it relates to productivity but seems to affirm what the public is experiencing daily.
In conclusion, South Africa cannot afford its public sector at the current level of stagnation and budget cuts for compensation and benefits are required. The second economic reality is that compensation only becomes problematic if it lacks concomitant productivity.
We hope this has been informative and helps you prepare your business for the upcoming year.