Counting the fiscal cost of Cosatu: where will we find R8.5bn?

Tim Harris, Shadow Minister of Finance
17 July 2012

Cosatu’s public sector wage demands are unreasonable, unaffordable and would cost South Africa an additional R8.5bn.

If this amount was funded by debt it would increase our budget deficit to almost 5% of GDP, even as economic growth remains weak. If it was funded by tax increases it would cost each South African taxpayer R1809 – money that is not reflected in the value each citizen receives from the public service.

In this year’s Budget the Finance Minister set aside a cost-of-living adjustment of 5%, which the State has already exceeded with an offer of 6,7%. For Cosatu to hold out for a blanket 6.9% seems unreasonable, especially given that inflation is forecast to average 5.8% a year for the next five years.

These hikes will come on the back of five years of above-inflation increases, with the government wage bill increasing at twice the rate of inflation between 2008 to 2010.

This trend has seen us shift spending away from productive items like infrastructure, which this year gets R71bn, and towards employee compensation which gets five times as much at R371bn - or 39% of government operating expenditure.

The Finance Minister tabled a 5% increase in the Budget for a reason. He understands that we need to shift our fiscal spending from consumption back to productive investment. If the Public Service Minister concedes to Cosatu’s demands, we will be handing over additional funds which could, for example, have:

• Paid the salaries of approximately 90 000 new police constables for a year;
• built 340 new schools using insulated panel technology; or
• provided first year financing for the upgrade of five new hospitals to service townships and rural areas.

Our constrained national finances and overwhelming social needs means that Pravin Gordhan has to hold the fiscal line and not release funds for another above-inflation, blanket wage increase for the public service.

Instead, we should urgently introduce differentiated remuneration based on performance so that hard-working nurses, teachers and police officers can get properly rewarded for their work, while salary increases for those bureaucrats that are already overpaid and unproductive are kept to a minimum.