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Treasury ‘certain’ additional R64bn wage cost can be accommodated

Tuesday, 20 October 2015   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BDlive)

The Treasury was "certain" that the additional R64bn that this year’s wage agreement will cost the state over the next three years can be accommodated within current expenditure limits, Finance Minister Nhlanhla Nene said on Monday.

His comments, a mere two days before he tables his medium-term budget policy statement in Parliament, will allay one of the concerns over the budget deficit projections that the Treasury made in the budget in February.

However, the effect of the lower growth rate and the expected lower revenue collection on the deficit projection will only become clear on Wednesday.

Mr Nene said in a reply to a written question in Parliament by Democratic Alliance (DA) finance spokesman David Maynier that the contingency reserve would be used to cover part of the additional wage cost "and so will resources available due to projected underspending. Some reprioritisation from other budget lines will also be required. Line departments at national and provincial level are being engaged to assess the magnitude of shifts required for reprioritisation."

Mr Nene noted that preliminary indications were that the 2015 wage agreement would cost as much as R63.9bn over and above what was provided for over the 2015 medium-term expenditure framework. Of this, R41.5bn was for cost of living adjustments, R11.1bn for medical assistance and R11.4bn for the housing allowance.

In reply to another question on the local government wage bill, Mr Nene said the South African Local Government Bargaining Council had recently concluded a three-year salary and wage agreement, which provided for a 7% increase in 2015-16, and the average rate of inflation plus 1% in the following two years.

According to information provided to the minister, the South African Local Government Association estimated the total cost of the agreement over three years at approximately R16.7bn, which would increase the total wage bill for local government from R77.9bn in 2014-15 to R94.6bn in 2017-18. This calculation assumed an average inflation of 5% for the 2016-17 year and an average inflation of 5.5% for the 2017-18 financial year.

"These increases in the respective wage bills of municipalities will be funded from municipal income generated from property rates, trading services such as electricity, water and other related service charges such as refuse removal and sanitation charges coupled with equitable share transfers from national government," Mr Nene explained.

In a statement on the medium-term budget Mr Maynier said that with weaker than expected economic growth, lower than expected revenue and higher than expected expenditure, "it is difficult to see how the minister will narrow the budget deficit, stabilise public debt and rebuild fiscal space.

"The ratings agencies will be watching the minister like hawks and even a whiff of fiscal slippage may cause a sovereign rating downgrade, which will increase borrowing costs."

Among the DA’s suggestions for the budget policy statement were measures to avoid tax increases such as cost-containment measures on consumption expenditure including reducing the size of the executive; increasing revenue through the disposal of state assets; and incentivising private-sector investment by privatising, or part-privatising state-owned enterprises.

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