Gordhan warns unions high salaries must match productivity

2010-10-28 00:00

GOVERNMENT will spend R977,2 billion in the next fiscal year from a revised R904,1 billion this fiscal year, which in real per capita terms represents a doubling of the resources available to the fiscus over the past eight years.

The proposed fiscal framework makes provision for average annual growth in compensation of 6,3%. In the section on spending, Gordhan takes on the unions with warnings about too-high salaries. There were trade-offs in expenditure that needed to be carefully considered.

Expenditure on compensation laid claim to 40% of tax revenue.

Gordhan warned that should wage growth continue to accelerate in excess of revenue growth, the sustainability of government employment, investment and other goods and services would be undermined.

An appropriately balanced composition of expenditure is important, both for the effectiveness of public service delivery and its potential effects on inflation and potential growth.

Disproportionate wage increases unrelated to productivity trends in the wider economy — and at the expense of capital and investment spending — would retard growth and employment through labour-market mismatches and rising production costs.

Changing the topic, Gordhan said declining debt service costs in the years preceding the downturn created the fiscal space for government to expand investment, social grants and public sector employment.

As revenue fell during the recession, the fiscus required higher levels of borrowing, resulting in a marked increase in debt service costs in the period ahead.

Over the medium term, the higher costs of servicing debt crowd out growth in non-interest expenditure.

Without moderation in government spending, budgets will continue to be financed through borrowing instead of tax revenue.

This will eventually lead to further reductions in the growth of non-interest expenditure and a rising debt burden on South Africans in the years ahead.

The fiscal framework adds R17,9 bn to expenditure in 2011/12, R28 bn in 2012/13 and R43,2 bn in 2013/14, resulting in average real growth of 2,7% in government non-interest spending over the next three years.

Since 2005/06, government has increased spending in education and health by 50% in real terms.

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