Measures to trim “unsustainable” public sector wage bill by R27bn

Wednesday, February 20, 2019

Allowing public servants to retire early and reviewing the diplomatic missions staffing structure are some of the measures government will take to trim the public sector wage bill.

Finance Minister Tito Mboweni said these and other measures will be implemented to reduce the wage bill by R27 billion over the next three years.

Mboweni tabled the Budget Speech in the National Assembly on Wednesday.  

“The public wage bill is unsustainable. We must shift expenditure to investment. National and provincial compensation budgets will be reduced by R27 billion over the next three years.

“The first step is to allow older public servants, who want to do so, to retire early and gracefully.

“This will save an estimated R4.8 billion in 2019/20, R7.5 billion in 2020/21 and R8 billion in 2021/22,” he said.

Mboweni said in time, this will be complemented by limits on overtime and bonus payments as well as pay progression.

“The system of staffing our diplomatic missions is unjustified and should be reviewed urgently,” he said.  

Mboweni said as a gesture of goodwill, members of Parliament and provincial legislatures and executives at public entities will not be receiving a salary increase this financial year.

“My colleague, [DPSA] Minister Ayanda Dlodlo will outline the details of the early retirement framework during the course of the week.”

Government to allow early retirement without penalties

In its Budget Review document, National Treasury said compensation accounts for more than 35% of consolidated public spending and has been a major driver of the fiscal deficit.

Treasury said spending reductions have typically fallen on goods and services, and capital investment.

This means that over time, compensation as a share of consolidated spending has increased for most departments.

Following last year’s wage agreement, the 2018 Medium Term Budget Policy Statement projected a shortfall of about R30 billion over the 2018 Medium Term Expenditure Framework period, if departments’ employee numbers remained static.

According to National Treasury, recent data shows that employee numbers are declining at a rate sufficient to absorb wage agreement pressures, owing to natural attrition.

Monthly payrolls in 2018 showed an average of about 16 000 fewer employees than in the corresponding months of 2015.

In addition, new employees tend to be younger and lower ranked than employees who are leaving.

“As a result of these trends, projected national and provincial compensation spending is likely to be lower than budgeted for 2018/19.

“Government has decided to scale up early retirement without penalties. Where feasible, older employees will be allowed to retire early, with younger employees taking their place.

“Departments are required to realise permanent savings of 50% of the cost attributable to early retirement cases. In December 2018, there were 126 710 public service employees between the ages of 55 and 59 years old.

“This initiative is expected to save an estimated R20.3 billion over the 2019 MTEF period, assuming that 30 000 employees take up the offer. This measure contributes to a more sustainable wage bill,” National Treasury said. –