The South African government has announced a freeze on government personnel headcounts together with a review funded vacancies in an effort to curb State spending and re-establish a sustainable foundation for the public purse. One-third of allocated expenditure for 2014/15 would be directed to compensation for public-sector employees.

In his inaugural Medium-Term Budget Policy Statement (MTBPS), Finance Minister Nhlanhla Nene announced the new measures as a means to lower the ballooning public-sector personnel bill over the next two years, warning that a failure to shrink expenditure could lead to trade-offs impacting on jobs and service delivery.

The National Treasury, the Department of Performance Monitoring and Evaluation, the Department of Public Service and Administration and officials from other departments had been tasked with the year-long review of public-sector workers.

The 2014 MTBPS outlined that posts across national and provincial departments that have been vacant for some time would be removed, with the permanent withdrawal of some of the funded vacancies being considered.

A National Treasury spokesperson told Engineering News that current vacancies across the 1.3-million employees at national and provincial government stood at about 11%.

While exceptions would be considered for critical positions, particularly those key to urgent national development ambitions, natural attrition would be relied on to create space for new appointments in a sector that cost the government around R450-billion a year.

Government also aimed to boost productivity and optimise its workforce to effectively deliver on the programmes that were required to stimulate growth and create much-needed jobs.

“Restoring sustainability to the fiscus, while protecting core social and economic programmes, requires a combination of spending and revenue adjustments over the next two years,” the MTBPS read.

The restraint in growing government’s wage bill had emerged as an important aspect of the National Treasury’s move to “rebalance” government’s financial ambitions as State expenditure ceilings were cut.

“Despite government’s success in maintaining the expenditure ceiling over the past three years, the main budget deficit remains at about 5% of gross domestic product,” the MTBPS remarked, attributing the financial difficulties to a structural imbalance between revenue and expenditure caused by weak economic growth.

Government aimed to cut its 2014 Budget expenditure ceiling by R25-billion over the next two years – R10-billion in 2015/16 and R15-billion in 2016/17 – and narrow the Budget deficit from the current 4.1% to 2.5% within three years.

The 2014 Budget, presented by former Finance Minister Pravin Gordhan in February, had indicated an expenditure ceiling of R1.028-trillion in 2014/15, R1.106-trillion in 2015/16 and R1.184-trillion in 2016/17.

It was expected that slower expenditure growth and tax reforms to increase revenue collection would improve the State’s fiscal position by R22-billion in 2015/16 and R30-billion in 2016/17.

The outcome of the public wage bill review, which formed a critical part of the State’s expenditure reduction plans, would, however, depend on the outcome of negotiations with unions for a new public-sector wage agreement, which would come into effect in April 2015.

As negotiations kicked off this month, unions had tabled demands for pay hikes of 15% and significantly higher housing allowances for public workers.

The State’s mid-term Budget accounted for compensation spending growth of 6.6% a year over the medium-term.

“Given current constraints, there is little scope to provide more resources over the medium-term period,” the National Treasury stated.

The rise of public-sector wages beyond inflation would also compromise critical national development projects and hinder service delivery with trade-offs on critical skills, the reallocation of funding and resources and job cuts on the table.

“Government will be forced to curtail service delivery – either by reducing social spending or capital budgets, or by trimming staff numbers,” the MTBPS documents revealed.

A National Treasury spokesperson told Engineering News that any above-inflation wage hike would limit government’s capacity to deploy the critical skills needed for key public service initiatives and its ability to deliver effective services.

Although staff costs have risen as average wages have increased, slower headcount growth – at less than 1% since 2012 after a rapid jump in the preceding years – saw compensation spending remain within budget in 2012/13 for the first time since 2007/8.