Parliament has been warned that, should the Public Service Wage Bill be escalated, it could pose a great risk to Finance Minister Enoch Godongwana's Medium-term Budget Policy Statement outlook.
The warning came courtesy of the Financial and Fiscal Commission (FFC), which presented its recommendations on the medium-term budget as presented by Godongwana last week. It is the FFC's mandate to respond to inquiries on fiscal policy from any organ of the state.
The FFC briefed a joint sitting of Parliament's Standing Committee on Finance, the Standing Committee on Appropriations, the Select Committee on Finance, and the Select Committee on Appropriations on Tuesday morning.
FFC chair Nombeko Mbava told MPs that debt service costs remain high and that the debt finance strategy should work in tandem with economic growth initiatives, and "growth-friendly fiscal consolidation" should be applied. In light of this, she said, the public wage bill could not be ignored.
"The commission notes the provision for the public wage bill increase for this financial year and calls for more comprehensive planning - including developing a long-term plan to address increases in the public sector wage bill and improve public sector productivity," said Mbava.
Godongwana penciled in an average 3.1% growth in the public service wage bill in the medium-term budget last week, after acting Public Service and Administration Minister Thulas Nxesi invoked section 5 of the Public Service Act to implement an increase unilaterally.
However, this happened amid adversarial wage talks in the public service, with the Public Servants' Association (PSA) set to strike for the first time in over a decade next Thursday. The government is also in dispute resolution processes with at least five unions in the public service.
Unions in the public service are also expected to march to Parliament on Tuesday.
FFC specialist on macroeconomics and data information, Thando Nkozo, said the extension of the Social Relief of Distress grant by a year to March 2024 implied that the government had no permanent social relief solution as yet.
Nkozo said the windfall revenue would not fund permanent spending increases but will address only critical issues at strategic state-owned entities. He said struggling state-owned entities and a ballooning public wage bill undermined the government's ability to keep a grip on spending and debt.
"With regards to the wage bill, we see that no wage bill increase is assumed for the next financial year. Only 3% has been pencilled in for this year. But what we note is that the public service salary negotiations are ongoing, and this means, to us, that there is great uncertainty around the issue.
"We note that transferring up to two-thirds of Eskom's debt to government's balance sheet is necessary to make Eskom fundable, but what we note is that it will increase government debt," said Nkozo.
FFC researcher Noxolo Mahlalela said main budget revenue is expected to increase to 25.5% of GDP in the current year, due to higher revenue collections, and is projected to average 24.9% over the medium term, but that global economic headwinds could undermine South Africa's chances to improve collections.
"Although the upward revisions of the revenue estimates are encouraging, we note that revenue could decrease if power cuts escalate, if global growth slows further or if the Ukraine-Russia conflict intensifies," said Mahlalela.
Mahlalela warned that while South Africa could expect a primary balance surplus, debt service costs and risks of the public wage bill escalating more wildly than expected added uncertainty and risk in the medium term.
"A primary balance surplus is projected from 2023/24 increasing in the following years. This reflects the government's commitment to fiscal discipline which is in line with its stance on ensuring fiscal credibility and sustainability. However, debt servicing costs present an escalating risk to the framework in the medium term," Mahlalela said.
FFC researcher for macroeconomics and data information Gianni Delle Donne said the increase in the public wage bills is being driven by growing salaries followed by numbers of those in the public service. She said the FFC recommends that the capacity of the public service should be kept in line with the medium-term budget projections.
"Compensation of employees remains one of the most significant expenditure items on the fiscus absorbing 31.4% of government revenue in 2022/23, and a decline of compensation as a portion of total expenditure by about 3.1% is essentially insignificant to bring about the decrease in the quantum of the wage bill that is required to ensure a budget balance surplus," said Donne.