South Africa: Cost-Cutting Measures for Bulging Public Sector Wage Bill

South Africa's Finance Minister Tito Mboweni delivers his medium-term budget policy statement on October 30, 2019.

Finance Minister Tito Mboweni has outlined a raft of cost-cutting measures that will see government save billions of rands in the public sector wage bill.

Speaking in Parliament today, Mboweni said government has to significantly reduce expenditure in goods and services as well as transfers if it is to stabilise debt by 2022/23.

The interventions will see the axe fall on various perks and salary increments frozen and later cut.

As a first step, he said, the National Treasury has identified spending reductions of R21 billion in 2020/21 and R29 billion in 2021/22 in these areas.

"In addition, non‐interest spending in the outer year of the framework is constrained in line with consumer price inflation," he said.

The Minister said government will need to find additional measures in excess of R150 billion over the next three years - about R50 billion a year - if it is to achieve its target.

To achieve this, Mboweni said government will need to deal with the bulging public service wage bill, state‐owned companies, executive remuneration and benefits and fiscal leakages.

In the Review accompanying the MTBPS statement, the National Treasury sets out a detailed analysis of spending on public‐sector wages. It reveals that 29 000 public servants, plus members of the national executive, Members of Parliament, members of the provincial executive, among others, each earned more than R1 million last year.

"After adjusting for inflation, this is more than double the number of civil servants earning more than R1 million in 2006/07," he said.

The average wage increase across government was 6.8% in 2018/19, or 2.2% above inflation.

After adjusting for inflation, the average government wage has risen by 66% in the last ten years, he said.

In his speech, Mboweni also called for a reduction in Board and Executive Management compensation and benefits.

He said President Cyril Ramaphosa has agreed to guidelines which will apply to members of the Cabinet and members of provincial executives. These include that, in the foreseeable future, Cabinet, Premiers and MECs' salaries will be frozen at current levels, with the likelihood of an adjustment downwards.

The guidelines also call for the cost of official cars to not exceed R800 000 VAT inclusive, as well as a new cell phone dispensation that will cap the amount claimable from the state.

According to the guidelines, all domestic travel will be on economy class tickets.

There will no longer be payment for subsistence and travel for both domestic and international trips on these levels, said Mboweni.

He urged leadership in Parliament to think about how they can further contain their compensation and benefits.

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