More to 'sudden' government wage deal

Cape Town - It is unlikely that the surprisingly quick public sector wage negotiation meant unions suddenly "agreed" with the government on the tightness of the budget, according to emerging markets economist Peter Attard Montalto of Nomura.

The negotiation levels changed from 10% to 7% and from R1 500 to R1 200 on housing "overnight".

"We suspect the government may have given reassurances about cutting down on layoffs for this kind of increase - contrary to what it has told rating agencies from recent rating reports," said Montalto.

"Because of the dominance of the Cosatu-related unions in the discussions, there may have been other political considerations. This is important considering those unions make up only 60% of public sector workers and there is still some risk that other unions may not accept the deal - and so some residual strike risk."
 
The public sector wage union had agreed "overnight" with the government on a very “low” 7% wage increase - backdated to April, followed by a consumer price index (CPI) inflation +1% increase in the following two fiscal years.

When you add in increases in the housing allowance and medical aid subsidies the rise is around 7.5% for this year, he said.

READ: Public sector: This is best wage deal we could get

"At that margin, although the Sarb (SA Reserve Bank) remains on edge over risks of a wage spiral in the economy, there is not a major warning light after this settlement - assuming it sticks through the July meeting," said Montalto.

"It will be interesting to see the rating agencies’ reaction to this outcome. We still suspect a hefty dose of benefit of the doubt. We will watch the level of public sector employment going into the local elections in May next year for additional risks to the compensation budget – particularly at the sub-central-government level."

For the current fiscal year Nomura thinks the deal should add around R8.9bn to expenditure and wipe out the unallocated reserve of R5bn.

Montalto sees the current wage deal as good for the Reserve Bank, which had seen a 3% to 4% real increase as a danger zone.

"The concern was generated by the fact that the public sector wage rounds are important for the whole economy’s wage rounds – of which 2016 is a key, more important year than this year," said Montalto.

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