The fake “7.5%” public servants wage increase and the game of smoke and mirrors

by May 23, 2023All Articles

Nehawu, Popcru, Denosa, Sapu and others went on strike for one week against the 3.3% wage increase. The Treasury had simply put this amount into the 2022/23 budget.

AS THE AUSTERITY trajectory of the Treasury continues downward, tricks and deception have become the order of the day. All to deceive public sector workers about the real amount of their pay “increase”.

Nehawu, Popcru, Denosa, Sapu and others went on strike for one week against the 3.3% wage increase. The Treasury had simply put this increase into the 2022/23 budget. The strike ended with an agreement by the parties to meet on 14th March, to ensure that the wage dispute about the previous budget year would be “positively dealt with”. The demands would be addressed in the 2023 wage negotiations that had already started. 

As the striking unions soon pointed out in a furious press release, this did not happen. The union majority had accepted the 3.3% increase imposed by the Treasury under protest and didn’t go on strike. On 28th March, the 2023 negotiations resulted in a two-year agreement. According to this agreement, in the second year, the wage increase will be in line with the official inflation rate, as long as it isn’t over 6.5%. Meanwhile, In the first year, 2023/24, the wage increase will be 3.3%.

But strangely it is marketed as a “7.5%” increase. As a result, the “7.5%” increase is now uncritically repeated in all media. Let’s take a step back in time and see how this mythical “7.5%” came about. Here’s a clue it’s all about the short history of the non-pensionable cash allowance. 

Four years of real wage cuts in the public sector

In February 2020, the Treasury stepped in and ordered the Department of Public Service and Administration to abandon the third year of the 2018 wage agreement the 2020/21 budget year. It happened just before Finance Minister Tito Mboweni’s Budget Speech. This was the public servants’ “wage freeze”.

The unions took this breach of the collective bargaining agreement to the Constitutional Court, and the judges agreed with the Treasury that “there is no money”. They supported the breach of the contract, arguing in their judgement that wage increases for public servants would hit social grants and social infrastructure programmes, which would be immoral.

As a result, only those public servants who qualified for “wage progression” based on employment years and local performance contracts got an increase of up to 1.5%. This was in line with the Occupational Specific Dispensation (OSD) agreement of 2008. Its purpose is to keep qualified and experienced staff in public sector employment, rather than leaving the public sector or even go to work outside the country.

Since the 2020 wage freeze, public servants have had wage increases below the official inflation rate. This is in a period when food inflation and price increases in transport and electricity have reached 10% and more per year. And in March 2022 the Department acknowledged there were 165,000 vacancies in the public sector, of which 39,000 were in health and 78,000 in education. 

The 2023 agreement signed by the majority unions on 28th March is no exception. It means that the Treasury has achieved a fourth year of public sector wage cuts – increases that are half of the official inflation rate of 7%. The bureaucrats can laugh all the way to the World Bank.

Now you see it, now you don’t

What is most significant is that the Treasury is confirming what we have been saying for some time – there will be a further shrinking of public service employment. By announcing it now, the Treasury is playing politics – in effect, hypocritically blaming the wage increase for cuts to services.

Now we come to the non-pensionable cash allowance. In the year after the freeze, the 2021 agreement included a non-pensionable cash allowance or “gratuity”. It amounted to between R1,220 and R1,695 per month before tax more for higher-paid wage groups. It was about R1,000 for everybody after tax. In addition, the usual wage progression for employees in the OSD scheme instead became a pensionable 1.5% wage increase for everybody.

This was the second year of a real wage cut across the board. In March 2022, official inflation had been 5.9% for the twelve-month period. In addition, Clause 3.3 in the 2021 agreement muddied the waters. It said that the gratuity would “remain in force until a new agreement is entered into by the parties”.

And here’s the trick. This allowed the employer, the Treasury and the press to present this gratuity as part of the wage increase. In fact, it was there already. But technically, it disappears the moment the new agreement is signed. Remember – the gratuity is only “in force until a new agreement is entered into by the parties”. Now you see it, now you don’t. Then, when the new agreement is signed, if the amount continues to be included it becomes part of the increase. Even though it was already there.

So the 7.5% comes from pretending that the gratuity that was paid in the previous year is new money. But of course, it’s not new money to the employees. They were already receiving it. All that has changed is that it’s now pensionable and integrated into the basic salary. This is the only positive in the new below-inflation agreement.

This conversion of the gratuity is what adds another 4.2% which, with the 3.3%, makes up this mythical 7.5%.

Cost to the state

The cost to the state will be higher than 3.3%, but it won’t be 7.5% either. The non-pensionable cash wasn’t a part of the so-called “Budget Baseline”, even if it was a part of the wage cost. The only extra cost will be the small amount (0.5%) for the pension on that amount. Then, of course, pension payments are calculated as a percentage of the basic wage. So they will have to pay a bit more in pension for the 3.3% increase that will cost them another 0.4% in addition to the 3.3%.

So, from the point of view of state expenditure, the wage bill increase for workers under the PSCBC is actually 5.15%. Of this, 0.95% was already in the 2023 budget.

The “risk” that “materialised”

Three days after the agreement was signed, the Treasury claimed that “a key risk to the fiscal outlook presented in the Budget” had “materialised”. They said that it was necessary to “cushion the blow of the wage agreement” with “head count attrition”, “restricting previously-planned recruitment”, “rationalisation”. In plain English, job cuts.

They also said they would be “reducing out-of-line remuneration in public entities”. This out-of-line remuneration” is prevalent among managers and directors in the 106 state agencies not directly affected by PSCBC wage bargaining. In our opinion, the Treasury will be least successful and motivated when it comes to restricting the increases of these generally highly paid employees.

What is most significant is that the Treasury is confirming what we have been saying for some time – there will be a further shrinking of public service employment. By announcing it now, the Treasury is playing politics in effect, hypocritically blaming the wage increase for cuts to services.

And they are not honest when they talk about “materialised risk”. The risk that they say has suddenly “materialised” wasn’t a risk at all; it was a certainty. Any wage agreement over 0% would have had the same effect since the Treasury had put a 0% wage agreement in the 2023 national budget. In March, the ANC MPs (whether or not they are former leaders of Cosatu or current members of the SACP) had said yes to a budget that only added R5.9-billion to the R623.1-billion 2022/23 wage bill. This R5.9 billion increase (which amounts to 0.95%) is for the annual wage progression that is not part of the wage bargaining process. The truth is that the amount in the National Budget for “Compensation of Employees” was designed to be overrun and fail. The “risk” was manufactured.

In fact, an announcement of further staff reductions as “a result” of a 3.3% agreement has been on the cards at least since the wage freeze. It is part of the 2021 Country Partnership Framework with the World Bank. And of course, it will trigger more people moving from public to private services.

The bottom line

So, in short, workers in the public sector are receiving a 3.3% increase, dressed up as a 7.5% increase. And this is at a time of 7% inflation. So in reality it is about a 4.2% cut in the actual amount on their pay slip before tax. And the Treasury insists that there will be no extra money in the Budget for this. Every cent will be taken from the budget for services. They will pay for it by further reducing services to the working class and poor of South Africa who depend on them.

Dick Forslund is an economist at the Alternative Information and Development Centre (AIDC) 

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