South Africa State Wage Deal to Cost Extra 66 Billion Rand

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A wage deal agreed with nurses, teachers and other civil servants in South Africa will cost the government an additional 66 billion rand ($5.6 billion), Acting Public Service and Administration Minister Nkosinathi Mthethwa said.

The government will draw on funds from its contingency reserves to help pay for the salary increase that wasn’t budgeted for in its fiscal plan, Mthethwa said in a phone interview on Friday. The department will meet with the National Treasury to discuss financing options, he said.

South Africa averted a strike by 1.3 million workers after signing a three-year agreement this week that increases wages by 7 percent this year and 1 percent more than the inflation rate for the next two years. Housing and medical subsidies will also rise. The Treasury made a provision in the Feb. 25 budget for the wage bill to rise by an average of 6.6 percent in each of the three years through March 2018.

“It’s a good breakthrough for our economy,” Mthethwa said. “A public-sector strike would have been devastating for our economy as we caught the cold of the global economic crisis and we are still reeling from that.”

State personnel costs have surged 90 percent to 445 billion rand since 2009 and account for almost 36 percent of total government spending, according to data from the National Treasury.

No Headcount

The 66 billion-rand figure includes the additional cost of the wage increase, housing subsidy and medical benefits over three years, Mthethwa said.

The higher wage bill won’t result in job cuts, though the government doesn’t see any room to increase employment, the minister said. The state has added between 70,000 and 80,000 workers in the past decade, he said.

“Additional headcount would not be possible over the next three years,” he said. “It will be extremely impossible and those posts which have not been filled would be better to be left that way because we will not be able to afford it.”

The wage agreement is based on a projected inflation rate of 4.8 percent, Mthethwa said. Inflation was 4.5 percent in April.

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