South Africa Gets Top Court Backing to Renege on 2018 Wage Deal

(Bloomberg) --

South Africa's top court upheld a ruling by a lower tribunal that allowed the government to renege on salary increases for public servants, bolstering its efforts to rein in runaway debt and the budget deficit.

The Constitutional Court announced the ruling in a judgment published on its website on Monday.

The government backtracked on an agreement to raise pay for about 1.3 million employees in 2020, the final year of a three-year deal. The move was as part of an effort to contain its wage bill, which grew at an inflation-beating annual average rate of 7.3% before the onset of the coronavirus pandemic. The Labour Court in December 2020 dismissed an application by unions to force the state to fulfill the accord.

Monday's ruling means the government won't have to find additional funds to make good on the agreement or bolster efforts to reduce its headcount. While honoring the deal would have cost the government 37 billion rand ($2.4 billion) in the 2021 fiscal year, it would have now been on the hook for 75 billion rand in back-pay for civil servants, Absa Group Ltd. economists, including Peter Worthington and Miyelani Maluleke, said in research note on Monday that cited National Treasury officials.

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The ruling comes ahead of another round of wage negotiations.

The Public Servant's Association, which represents more than 240,000 state workers, said it intends to seek increases equivalent to the consumer inflation rate -- which currently stands at 5.7% -- plus 2 percentage points, and that it wants a single-year wage deal. That compares with a budget estimate for the state's annual salary bill to rise by an average of 1.8% annually over the next three fiscal years.

Remuneration costs account for about a third of total government expenditure, and agreeing to demands for continued inflation-beating increases would compromise the medium-term fiscal framework presented by Finance Minister Enoch Godongwana on Feb. 23.