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(Another) lapse of reason

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The 2011 round of wage negotiations between Government and its 1,6m employees will be a critical test for the latter’s ability to put the economy ahead of political expedience. Cabinet is acutely aware the rapidly expanding public sector wage bill – which has doubled to R300bn over the past five years – will, if unrestrained, eventually torpedo plans to accelerate real economic development.

Finance Minister Pravin Gordhan has repeatedly warned Government doesn’t collect enough tax to meet wage demands – which are significantly above inflation – as well as maintain and expand Government services. Public sector unions haven’t taken much notice. This year they’re demanding increases ranging between 8% and 18%, plus improvements to housing subsidies and medical aid schemes.

That follows what Investec Wealth and Investment chief economist Brian Kantor calls a few years of “extremely generous” pay hikes for a group that’s employed and middle class as opposed to the poor and unemployed.

In 2009 public servants asked for 15% more money and secured increases of between 10% and 13%. Last year they wanted 12% and a R1 000/month housing subsidy. Government gave them a 7,5% increase and an R800 housing allowance. A study by the South African Institute of Race Relations (SAIRR) showed on average Government employees now earn 44% more than their peers in the private sector. Just over a decade ago public servants earned, on average, 12% more than the private sector.

However, it’s not just Government salaries that have been expanding. The SAIRR study also showed one out of eight South African workers (13% of the workforce, or 1,61m of 12,8m)) now work for the State. National Treasury Local Government Budget Review documents flag the fact that despite that expansion and increased cost of each employee, vacancy rates have, in many instances, also increased. That’s especially in areas requiring highly skilled or professional individuals.

That leaves Government trying to reverse the effects of policies that have increased the size and doubled the cost of its workforce without attracting and/or retaining the kind of skilled personnel vital to up the State’s financial management and its services delivery.

Municipal government is a good example. Statistics SA figures show staff salaries now take the largest slice (almost 30%) of local government operating expenditure. While the SA Municipal Workers’ Union wants an 18% across the board increase this year, Municipal IQ economist Karen Heese says although Government’s salary bills shouldn’t exceed 30% of its operating Budget, the size of that bill isn’t as important as the kind of value (productivity and skill) taxpayers get from the salaries they fund.

The economic consequences of an expanding but skills deficient public service are obvious. However, the politics of the situation is where economic reasoning comes unstuck. It’s where services and the genuinely poor and unemployed start to lose out. “There’s always a danger taxpayers get taken to the cleaners by people who work for Government. We see that all over the world at the moment,” says Kantor, who acknowledges the public service carries clout because it’s a key constituency of ANC supporters.

Around 46% (890 000) of union federation Cosatu’s members are employed by the State. Last year’s crippling public sector strike underscored how confident that group of Cosatu-affiliated unionists are in their militancy. Essentially, they make up a critical mass that ambitious politicians need to keep sweet, especially now when there are less than 18 months left before the ANC’s 2012 elective conference.

Regardless, says Kantor, the current global and domestic economic predicament makes it paramount that ANC leaders and supporters in the unions negotiate wage increases with a responsible outlook towards SA’s economy. They must do all they can to close the gap between those who enjoy the benefits of formal employment (read, unionists) and the genuinely poor who don’t. The jury is out as to what kind of reason will prevail.
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