Medium-Term Budget: To save public services, we must cut the public sector wage bill

28 October 2019

Overview:

On Wednesday 29 October, Minister Tito Mboweni will deliver his second MTBPS, and his first of the new administration.

His number one priority must be to present a credible plan to prevent a blow-out of the deficit and to stabilise the national debt. This is will require deep spending cuts.

This must be the primary goal of the speech if the government is to retain (and hopefully, reclaim) credit worthiness and the global credibility that is so central to attracting investment. Equally important, this must be the goal of the speech if the government is to save essential public services from collapse.

Today the Democratic Alliance (DA) presents a credible plan to stabilise the deficit and the national debt over the next three years.

The DA’s plan meets this target by achieving a net adjustment of R235.85 billion over the MTEF period, including R168 billion in cuts to the public wage bill.

During the past year, the government has shown itself unable to make decisions. The government has been ambitious in commitments to reform, but largely inconsequential in action.

As a result, the economy is not growing nearly fast enough to make a dent on poverty and unemployment. We expect growth projections to be revised downwards again. This also means that revenue targets will be missed, as VAT and corporate receipts collapse.

There are now 10.2 million South Africans who are looking for work or who have given up looking for work, nearly 600 000 more than at this time last year. This too only exacerbates revenue shortfalls, as personal income tax receipts collapse.

Growth, and only growth, can get South Africa out of the vicious fiscal cycle it is now in. If we are to save the public services that the poor and the public-at-large depend on, the Minister and the President must realise that they can no longer continue putting off the difficult decisions needed to turn around the economy.

The delay in implementing real economic reforms to get the economy growing means the government now faces a stark choice. Either it can save basic services, or it can save public sector jobs. It is no longer possible to do both.

Public Wage Bill:

For far too long, government has avoided a difficult discussion with public sector unions about the cost and composition of the public wage bill. It is time for decisive moral action in the interests of the country.

The centre of the DA’s proposal is a deep cut to the public sector wage bill over the MTEF period.

We have done detailed work on this proposal in order to best ensure that (1) essential frontline public services are not affected, and (2) as many jobs are saved as possible.

We propose a R168 billion cut to the public wage bill over the next three years:

- A 3-year freeze on all non-occupation specific dispensation (frontline) wages, saving R138.6 billion over three years

- Reducing the number of the most highly paid head office management staff in the public service by approximately 9200 posts, saving R29.4 billion over three years

We minimise these cuts by proposing further revenue raising mechanisms and cuts to other superfluous programmes:

Once-off mechanisms:

Auctioning digital spectrum would raise R32.5 billion

Selling Telkom shares would raise R14.5 billion

Selling Sentech would raise R1.8 billion

Additional cuts over MTEF period:

Eliminating New Development Bank funding would save R13.25 billion

Eliminating National Health Insurance funding would save R5.8 billion

SOE Bailouts:

It is morally indefensible to cut public jobs, basic services, infrastructure investment and support for the poor, just so that government can continue to bail out failing State Owned Entities (SOEs).

The cuts required over the medium term are so deep, that it is unlikely that basic services and infrastructure spending will not be affected. Indeed, this is the path of least resistance politically, although it also has the most devastating effect on the poor.

The crisp question is: how can government continue to justify subsidising air travel for the privileged, through SAA, while cutting basic services to the poor? How can it continue to justify making the public pay exorbitant electricity prices, while protecting a failing business?

This government must now clarify its policy on continued state ownership which is manifestly not working.

The Minister should announce that SAA will be placed under business rescue, and that SA Express be shut down forthwith.

Summary:

In his MTBPS, the Minister must:

Present a credible plan to prevent a deficit blow out and stabilize the national debt;

Show recognition of the stark choices between public services and public wages, and present a plan to cut public wages; and

Stop the immoral bailout of failing state-owned entities at the expense of services for the public.

Issued by Geordin Hill-Lewis, DA Shadow Minister of Finance, 28 October 2019