South Africa Treasury Sees Debt Surge If Wage Deal Proceeds

(Bloomberg) --

South Africa is opposing a bid by labor unions to compel the state to honor a public-service wage deal, warning the accord would lump the country with 37.8 billion rand ($2.2 billion) of additional debt.

The government in April reneged on an agreement to raise pay for more than 1.2 million employees as part of an effort to stabilize state finances. The Public Servants Association, which represents about 250,000 government workers, took the dispute to the Public Service Co-ordinating Bargaining Council and the matter is now before the Labour Court.

PSA spokesman Reuben Maleka and South African Democratic Teachers Union Secretary-General Mugwena Maluleke said their organizations are opposing the government. The Congress of South African Trade Unions, the nation's biggest federation of labor groups, on Friday called for protests next week to back their demands for the government to honor its wage agreement.

Freezing the pay of civil servants is critical to Finance Minister Tito Mboweni's plans to cut government spending by 230 billion rand over the next two years to rein in surging debt. About a third of the government's annual 1.95 trillion-rand budget is spent on salaries.

Mboweni is scheduled to present his medium-term budget later this month.

‘Increase Unaffordable'

Increasing government employees' wages is unaffordable, particularly given the impact of the coronavirus pandemic on state finances, Treasury Director-General Dondo Mogajane said in a July 17 affidavit.

“Government is compelled by the Covid-19 pandemic to spend public funds (which are already in deficit) to alleviate the plight of the poor and vulnerable,” he said. “Regrettably government simply cannot in these circumstances accede to the applicant's claim for yet further increases.”

Public Service and Administration Minister Senzo Mchunu backed the Treasury in a Sept. 25 affidavit.

Mboweni in June presented an emergency budget in which he targeted a primary surplus by 2023-24. This month's announcement is expected to outline spending cuts and revenue-adjustment measures amounting to about 250 billion rand over the next two years.

Mogajane stressed that while the government is unable to afford raising public servants' pay, employees aren't facing pay cuts as some in the private sector have.

“The Covid-19 pandemic has come at a great cost to employment in the private sector, with numerous remaining employees receiving no increments or even experiencing pay cuts to preserve employment,” he said. “The applicants' members' jobs are in contrast not threatened. Nor are their salaries reduced.”

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