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The fiscal risk that public service wage costs pose to the fiscus is no small matter, said Minister of Finance Tito Mboweni, putting the challenge in the same league as beleaguered state-owned entities.
Mboweni tabled his first Medium Term Budget Policy Statement in the National Assembly on Wednesday afternoon.
His remarks come at a time when government, through the Department of Public Service and Administration, is grappling with unions in the public service sector over wage increases.
Between 2006/07 and 2017/18, compensation spending on the main budget more than tripled from R154bn to R480bn. Inflation accounts for just over 40% of the increase in compensation spending. The rest of the increase stems from a rise in employment and above-inflation increases in remuneration.
Unions have dismissed claims from government that it cannot afford above-inflation wage increases for public servants and labour is on edge about fears of potential mass reduction of staff.
According to the adjusted estimates of national expenditure, compensation of public servants accounts for a large and growing proportion of consolidated spending.
Over the period, compensation spending was one of the fastest-growing items in the budget, increasing at an average of 11.2% a year.
"Analysis of compensation spending since 2006/07 reveals that the main driver of increased spending is large increases in wages and other employee benefits, rather than increases in employment," the document said.
The national expenditure estimates went on to say that increases in average real wages were partly owed to above-inflation agreements reached between government and unions. However, it said wage progression and promotion policies account for a considerable proportion of the rise.
"Wages have increased most rapidly in the lowest ranks of the public service, compressing wage distribution. Overall, the number of public servants has increased since 2006/07. Employment peaked in 2012/13, after which personnel numbers have fallen by just over 1%," it said.
According to national expenditure estimates, in line with government's efforts to manage the wage bill, the 2018 budget projected that compensation would grow broadly in line with inflation.
It said the latest public service wage agreement, however, increased wages above inflation, leaving a R30.2bn shortfall over the period of the new agreement.
