South Africa: More Calls To Control Public Sector Wage Bill

While reaction to Finance Minister Pravin Gordhan’s 2012 budget has been varied, calls are emerging from analysts warning government to keep a close eye on the public sector wage bill.

“[The public sector wage bill] is just getting bigger and bigger and it’s placing a burden on the taxpayer. You can’t continue like that,” said Sasfin economist David Shapiro at a breakfast briefing on Thursday.

Gordhan tabled the country’s National Budget on Wednesday afternoon, which tallied up to R1.06 trillion for the first time. Last year, National Treasury warned of the sustainability of the wage bill. Currently, the public sector wage bill makes up 42% of government revenue.

However, Shapiro praised South African taxpayers for their commitment to paying their taxes while also praising the private sector for their work ethic.

“The one amazing element is how hard companies work, they are world class and of course not forgetting taxpayers,” said Shapiro.

Tax Director at PKF chartered accountants and business advisers, Eugene du Plessis, said the budget had surprised with a hard hit on high net-worth individuals. He said these individuals were targeted with measures that affect the wealthy.

“Targeting the high proportion of their income that they earn from passive investments in reality is making South Africa such a high tax country for the wealthy that there is little incentive for them to live here,” said Du Plessis.

Capital Gains Tax (CGT) for individuals and special trusts will be increased from 1 March – from 25% to 33.3%, while that for companies and other trusts from 50% to 66.6%.

In the budget, Gordhan announced a 20 cent increase in the country’s fuel levy as of 4 April. Shapiro said with rising oil prices, South Africa was likely to see fuel prices on the increase.

“It is quite a worry,” said Shapiro.

Gordhan announced that an additional R12.3 billion over the next three years would be allocated to the health sector, with R1 billon allocated for the pilot projects of the National Health Insurance (NHI).

Du Plessis said the NHI was a good idea but still required work to be done. While the infrastructure spending was welcomed, there was concern over a lack of timeframes involved.

In a statement on Thursday, Cape Town Mayor Patricia de Lille welcomed the focus on infrastructure investment.

With the reduced deficit mentioned by the minister in the budget, this should help investor confidence in South Africa, noted Nedbank economists. The budget deficit falls to 4.6% of GDP in 2012/13, off from a downwardly revised 4.7% of GDP in 2011/12.

“The focus of the budget is in the right place, emphasising the pre-eminence of higher inclusive economic growth as the primary and only sustainable way of reducing unemployment, poverty and inequality. The expansion in social grants is coming to an end, with the rate of increase levelling off,” Sanlam Group economist Jac Laubscher said.

According to David Powels, president of the National Association of Automobile Manufacturers of SA (NAAMSA), Gordhan, against the background of slower growth in the domestic economy and the challenging global economic outlook, has tabled appropriate and disciplined budget proposals.