As negotiations over the increase in public sector wages in the 2022/23 financial year continue, Finance Minister Enoch Godongwana stated in his Budget speech in February 22 that government remains resolute on narrowing the public sector wage bill in the medium term.

He noted that a public service wage agreement that exceeded the rate of growth accounted for in the Budget remained a key risk to the fiscal outlook for the new year and would require steps to contain overall compensation spending through “stricter headcount management”. 

Government in November 2022 tabled a final offer of an effective 7.5% increase to unions in what have been deadlocked public service wage talks. This increase would still cost the fiscus R34-billion in the 2022/23 financial year.

Unions were demanding a 10% baseline increase and protested for one day in mid-November against the initial offer of a 3% increase.

The compensation of public sector employees as a percentage of consolidated government spending has been declining from 35.7% in 2013/14 to 32.6% in 2021/22, however, it is still unclear whether government will have achieved the targeted 31.8% rate in 2022/23 as negotiations continue.

National government targets compensation of employees to comprise 31.3% of consolidated spending in 2023/24, before narrowing this figure further to 30.9% in 2024/25 and 30.7% in 2025/26.

The 2023/24 Budget provides for the carry-through costs of the 2022/23 wage increase; however, an unbudgeted wage settlement will require “very significant” trade-offs in government spending, owing to the wage bill being a major cost driver.

Compensation spending will increase from R690-billion in 2022/23 to R760-billion in 2025/26, growing at an average yearly rate of 3.3%, mainly owing to the carry-through costs of the public service wage increase implemented in 2022/23 – once an agreement has been reached with unions. An amount of R45-billion is allocated for compensation of employees over the next three years to provide for the carry-through costs of 2022/23.

Godongwana said future wage negotiations would be aimed at striking a balance between remuneration increases and the need for additional staff in services such as education, health and police.

The Department of Public Services and Administration is working with National Treasury and other national departments to conduct a review across government, towards a position of a single remuneration framework that is fair, equitable and sustainable.

Godongwana concluded that National Treasury would work with the Presidency on concrete proposals to achieve more savings by rationalising or closing public entities.

Recommendations to this effect should form part of the next Budget.