Over the next three years government will spend R4.4 trillion, approximately R1.8 trillion representing 40%, will be spent on the Public Sector wage bill. This will be the budgetary spending in line with its Medium Term framework and guided by the precepts of the National Development Plan, with little room for discretionary spending. In Minister Nhlanhla Nene 2014 Medium Term Budget Policy Statement, Minister Nene warned structural challenges partnered with a shallow global recovery had put a strain on the government’s ability to grow revenue.
With economic growth forecast to be 1.4% in 2015, 2.5% in 2016 and 3% in 2017, government has to balance the books in an environment of shallow growth and much needed infrastructure development.
Minister Nene has the unenviable task of raising revenue in this tough economic environment, facing a need to increase revenue by raising taxes through Value Added Tax (VAT) and higher personal and business taxes without raising the ire of the population or encouraging divestment.
The unpleasant truth is government needs more money to meet its Constitutional requirements to prioritise social and economic rights.
However, in my opinion generating revenue may not be the only area to find the balance between funding and delivery, reducing expenditure should be a priority. One area that Minister Nene has already identified is South Africa’s public sector wage bill.
South Africa’s public sector has grown – one is twice as likely to be employed in the public sector today, as 40 years ago – with little perceived improvement in service delivery, law and order and administration. Our BRICS partners spend on average 25% of their total government expenditure on salaries, by contrast South Africa spends approximately 40% of its budget on salaries, or R450 billion annually.
Reducing this expenditure is not straight forward. Public sector employees account for approximately 22% of the workforce. Job cuts are not an option for government. Doing so would add to the already high unemployment rates and contradict government’s role in addressing its National Development Plan (NDP) objective of job creation. It would also bring government into direct conflict with the Unions at a time when government is looking for their support (along with the private sector) to implement the National Development Plan.
In July 2014, Minister Nene stated that funding for long vacant posts would be withdrawn. On the surface this seems sensible but there needs to be careful review of what those posts are and in what sectors.
For instance in its 2013/14 annual report, the Gauteng Department of Health stated it had 9 510 vacancies out of the more than 70 000 approved posts in the Gauteng. However, these vacant posts are for doctors, professional nurses, pharmacists, and other medical specialists essential to the functioning of the Department and hospitals.
We can also not assume that the number of employees will be contained at current levels and there will be no need for any new posts to be created. As government rolls out Operation Phakisa, which aims to accelerate the execution of the National Development Plan, it will require additional funds and specialist skills to achieve the results from this initiative.
Although reluctant to use external consultants, government should weigh up the long-term cost benefit of using specialist consultants for fixed-term contracts instead of government adding expensive specialists onto the payroll. As we know once Government adds to the payroll it cannot reduce it going forward.
The major concern going forward is as the economy declinces and revenues to the fiscus decline, there is less money for service delivery as the wage bill continues to eat up in the available funds.
One way for government to make significant cost savings is to address its inefficiencies. An example of this would be to skill up all finance staff in Govenrment to manage funds better. This will result in costs savings, reduce corruption and make more money available to deliver on Governments mandate. Another example would be improve on the human resource processes. Many employees are placed on suspension with full pay for anywhere up to two years while disciplinary procedures are followed. By reducing red tape and streamlining the human resources processes, the savings on the wage bill can be substantial.
Another critical factor for Government is to look at the issue of linking pay to performance and its policies relating to the guaranteed 13th cheque and performance bonuses. An adequate performance mangagement system should be implemented to ensure effective service delivery.
The balance between administrative and service delivery employees for the more than 1 million public sector employees needs to be looked at. Currently we have too many administrative staff with little focus on service delivery. Government needs to link its service delivery tasks to employees and skills.
President Zuma set up a remuneration commission in 2013 to look at the pay and working conditions of civil servants. The commission is focusing specifically on organisational development, job evaluation and grading; recruitment; appointments and promotions, performance management and best practice policies.
As far back as 2008/2009 then Finance Minister Pravin Gordhan expressed concerns about revenue. His tight hand on the reigns curbed spending, negating the need to raise taxes and risk stifling economic growth.
Minister Nene has suggested that if left unchecked, government debt would rise above the R2.4 trillion he forecasts for 2017/2018. That is a manageable figure he has suggested but it will only remain so if fiscal consolidation is tied to a greater focus on long-term expenditure planning.
Will government be able to set a pay curve to ensure that staff are rewarded fairly and consistently in line with their seniority and skills?
How will this support the much needed improvement in service delivery against the backdrop of cost cuts, increase salary demands and the requirement to “do more for less”?
We await the recommendations with interest.