The public sector wage bill has been a binding constraint on the budget, consuming 40% of it and growing at a pace that has far outstripped inflation.
Cutting wages is at the top of the list of credit ratings agencies who have warned that the budget needs to be restructured.
The numbers of public servants grew 20% between 2006 and 2011.
While the Treasury has fastidiously avoided retrenchments, the adjustments to the budget over the next three years will compel departments to reduce their headcounts. Operational budgets have been cut 1.2% across the board.
Worst affected will be the police, defence force and criminal justice system.
While the health and education budgets will grow in real terms, defence, public order and the safety cluster's will grow only at a rate of 5.8% - unlikely to keep pace with inflation.
This, said budget office head Michael Sachs, would imply personnel reductions.
Briefing journalists prior to the presentation of the medium-term budget policy statement, Sachs said the growth in the public sector wage bill had been moderated. "The provinces have decreased headcounts by about 20,000 over the past three years. We hope to see a further reduction in headcount by 25,000 over the next three years," he said.
Sachs said new measures to prevent departments and provinces from diverting unspent money for personnel to other priorities had been introduced. Departments have tended to overbudget for personnel compensation in anticipation that vacancies would be filled. It became common practice to divert these funds to other areas when posts remained vacant.
"There is much tighter control and departments are feeling the constraints," Sachs said.
Public sector trade unions agreed to a 7% wage increase, which took effect last April and will grow by inflation plus 1% over the next two years.
When other benefits and increments were included, the wage bill grew by inflation plus 2%, he said.
"If the wage agreement to be negotiated in 2017/18 is aligned with inflation, however, a greater share of expenditure can be allocated to other spending priorities, and pressure on national headcounts will be reduced," the Treasury said in the medium-term budget policy statement overview. It said discussions were under way with departments that faced significant wage pressure to ensure the compensation ceiling remained in place.
"While these pressures will not affect the overall expenditure ceiling, they may shift the composition of expenditure."
Source: Business Day
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