BLSA welcomes court decision on public sector wage bill

18/12/2020 | By Admin

Business welcomes Monday’s decision by the Labour Appeal Court that government is within its rights not to implement salary increases for this year. This will help government avert a fiscal crisis.

The court found that the current wage agreement between government and unions is unaffordable. The court recognised that both the Constitution and the Public Service Act require that for any public sector wage agreement to be valid, it must be affordable to the public purse.

South Africa is facing an unprecedented fiscal crisis. Tax collection has plummeted as a result of the economic impact of the Covid-19 pandemic and restrictions on social activity. National debt levels had already reached record levels before the crisis – forcing the loss of our last investment credit grade in March – and are set to continue rising for the next few years. This trajectory will lead to a collapse of government finances with major systemic financial and social consequences if it is not changed.

The public sector wage bill has grown some 70% in real terms over the last 12 years and is a major contributor to the destabilisation of national finances. Public sector wages have grown on average by 10.5% per year while nominal GDP has grown by 8.2%, implying that public sector wage growth has been far higher than in the private sector.

The economic recovery depends in part on a resumption of investment, a significant component of which must be financed by the public budget. National Treasury has said it will aim to protect investment levels and focus expenditure reductions on consumption. By far the largest component of this is the wage bill.

The weak fiscal position feeds into low business confidence as companies fear for the outlook. The Covid-19 crisis has already led to a loss of 1.8-million private sector jobs, widespread salary reductions and freezes, and the loss of profitability of companies. The private sector will adapt and look to innovate and return to growth. But it needs confidence in the sustainability of the national accounts in order to be able to do so.

BLSA calls on the parties to accept the court’s view and eliminate the lingering uncertainty that the prospect of appeals will create. South Africa will recover faster if we all accept the necessary adjustments that must be made now and focus our energy on driving the recovery. We urge unions to join the collective effort that must be made to implement the economic recovery plan.

Business is focusing on 2021 and recovering from the worst economic performance of a generation. We need an efficient and cost-appropriate public sector to partner with in doing so, as well as committed labour movement. There is a great deal of work to be done for us to drive a recovery of the economy to reach levels of before the crisis, and then to start delivering real per capita growth, which we have not seen for five years. That is what is required to start delivering a better life for our citizens.