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Op-Ed: Austerity at Sars threatens state capacity and public service stability

By Dick Forslund and Brian AshleyDailyMaverick | 23 May 20222 

Dick Forslund is senior economist at the Alternative Information and Development Centre (AIDC). Brian Ashley is the editor of AIDC’s magazine Amandla. Disclosure: This article is a part of a series of research studies for Labour in response to the government’s attack on the public sector.

The planned cuts to salaries and wages at the South African Revenue Services detailed in this article serves as a warning of what faces public sector workers and service delivery in SA in the coming years.

In spite of mainstream media reports on the havoc being caused to state institutions — such as Stats SA, the Weather Services and the Courts — not to mention cuts to public sector wages and up to 200,000 vacancies in the public service, popular resistance to austerity remains muted. Now it seems Sars is also to be a victim of austerity measures. 

The President, the Finance Minister and the Commissioner of Sars have made much of the institution’s recovery from the Tom Moyane period. After the budget speech in February 2022, Sars Commissioner Kieswetter claimed that two-thirds of the R182-billion additional revenue above the 2021 budget estimate was the result of more efficient and effective work at Sars, not the boom in commodity prices. 

Despite this claimed success, Sars is now in the austerity headlights, with Sars workers targeted for severe wage cuts. Government is sticking to its wage offer of 0% across the board for the 2022/23 budget year. Both the Public Servants Association (PSA) and the National Education, Health and Allied Workers Union (Nehawu) are threatening to go on strike.

But before looking at budget documents related to Sars, let us first contest the government’s sleight of hand when it comes to trumpeted announcements (mentioned in the President’s State of the Nation Address) of 10,000 new recruits for the Police: the increase, no doubt, prompted by poverty-looting and factional rebellions in July. 

This will give us a sense of job culling still to come.

A shrinking police force

According to Vote 28 in the Estimates of National Expenditure (ENE), the plan for this year and the next two years is to have 178,708 employed in the police services; this is increasing by 2,000 from 176,708 in 2021/22, not “10,000”. But employment in the police was 187,358 in 2019/20: The “10,000 new recruits” is a net increase of 2,000 from last year to this year, but a decrease of 8,650 since 2019/20. 

Government relies on attrition to ensure its employment cuts everywhere.  People quit, go to the private sector, retire, don’t get their contracts renewed or they die. They are not replaced. 

At the Public Sector Summit in March, the Department of Public Service and Administration (DPSA) made a presentation (copy in our possession but not on the website) on the state of the public service. Director-General Yoliswa Makhasa reported that 164,661 posts were reported vacant in December 2021, of which 39,367 are in Public Health and 73,088 in Public Education. 

Fifty-five per cent of the officially vacant posts are for specialists and experienced staff. 

Makhasa added that estimates of vacancies might be an underestimation. She said audits of actual workloads haven’t been done. But in spite of this level of vacancies, the overall budget plan for “Compensation of employees” indicates that another 50,000 public sector jobs are on the line over three years.

The labour cost plan at Sars

But back to Sars. The Estimates of National Expenditure (ENE) is budgeting for an average wage increase of 5.4% for 2022. See table below:

Table 1: Sars labour costs and END labour cost plans in nominal amounts.

But if this is the case where does 0% “wage offer” come from? Has Sars been ordered not to ‘disturb’ the wider public sector negotiations? 

Most probably. But while the unions represent Group 1-12 in the wider public sector negotiations, they represent the low paid workers in Group 1 to 6 at Sars that are supposed to get special treatment this year according to the ENE. 

  1. In Group 1-6, the number of workers is set to increase by 100 this year. Yet, the labour cost is budgeted to fall by 3.4%.  For this to happen, cuts in benefits have to be added to the 0% “wage offer”, just as in the last two years. Or is Sars planning to casualise employment, starting this in its lower-paid workforce?
  2. Average price increases on goods and services (CPI inflation) in March was 5.9% year on year. The Pietermaritzburg Household Food Basket registered 8.2% annual inflation in April. Annual producer price inflation stood at 12% in March, again indicating accelerating consumer inflation. Are one thousand low paid workers at Sars expected to accept over 10% real cuts in wages and benefits this year?
  3. How does this comply with the employer’s duty, spelt out in section 27 of the Employment Equity Act, to “progressively reduce disproportionate income differentials”?
  4. Employment in all groups is fixed from 2022/23. In year two the labour costs are supposed to be cut across the board by 0.5% and in year three by 11% in nominal terms. How is Sars going to pull this off?
  5. If prices only increase by 6% during this budget year, and even if inflation then falls to 5% per year, the real average labour cost at Sars will fall from about R615,500 in 2021/22 to R491,500 in 2024/25 (in 2021/22 prices), or by more than 20%. For Group 1-6, the average labour cost is set to fall from R158,500 in 2021/22 to R116,000 in 2024/25 or by 27% in real terms. Are the Treasury’s figures wrong or has a Thatcherite conversion taken hold?

Three weeks ago the Commissioner politely asked for an extra R9-billion for Sars over the next three years to repair Sars from the State Capture project and rein in an army of private and corporate tax dodgers. He can’t have been reading the ENE. 

Now, the current plan in the ENE also foresees an increase in funding of the non-staffing component: R900-million over the next three years. No one questions that Sars needs sophisticated computer technology to do its work. But anyone who has waited for hours to consult a Sars official, will also know that Sars needs more staff, especially well trained and motivated staff. The coming wage cuts are an affront to this critical priority. Sars cannot have the new machines operated by staff in an uproar. The Treasury and a compliant Parliament are cutting off their noses to spite their faces.

Leaders in unequal remuneration

Now, with their strategy of percentage wage increases across the board in the whole public sector, PSA and Nehawu end up defending the very high salaries paid to those at the top; in effect, at the expense of the lower paid. Such a wage policy reinforces the country’s status as a world leader in inequality: President Ramaphosa is one of the best-paid presidents in the world. The table above includes large pension fund contributions and payroll costs like the UIF but the differentials are striking. The salaries of the highest-paid at Sars are on par with the remuneration of Ministers and other top government officials. Interestingly, it is Commissioner Kieswetter and Finance Minister Godongwana who determine those salaries at Sars, from Group 7 and up to the top.

Appalling income inequality is nothing that a strongly progressive income tax policy cannot fix … if there is political will.  Aside from involvement in taxation and budget policy, trade unions can seize the moral high ground by prioritising the wages and the work situation of the lower-paid members. There are different ways. The most effective way to do it is to settle for pensionable wage increases in rand.

The wage freeze in 2020 started off extreme austerity. Holistic consequence analysis is due for presentation by the employer in the negotiations at the Sars and the rest of the public sector: of real wage cut and staff reduction plans, on top of 165,000 posts already declared vacant. 

Last year, when AIDC applied to be Friend of the Court, Advocates Ngcukaitobi, Brickhill and Bishop noted in their legal submission to the ConCourt that “How public servants are paid does not only affect public servants — it affects those who rely on their services for the fulfilment of their constitutional rights”. The Constitutional Court didn’t see this when it, in effect, made every February and October budget into unshakeable law. After the Constitutional Court’s judgment against the unions in January 2022, the public sector negotiations are as political as they can get. 

The public service is ravaged by corruption, tax dodging and “fiscal consolidation”, motivated by growing debt service. But the Treasury’s and the World Bank’s strategic idea is to reduce the share of the public service in the whole economy. The massive budget cuts will make SA even more unstable socially. This is the meaning of the $750-million loan that the World Bank celebrated as its first “policy-based lending” ever to SA, “anchored” in a “Country Partnership Framework”, signed in June last year without public knowledge. 

The budget plans for the key institution of Sars is indicative of just how far the government is prepared to go. Yet, the unions are too quiet. They have a chance to appeal to wider society to join them in a hard fight against austerity. However, this will require shifting their wage policy to one of equity; a break with the tacit defence of extremely high salaries for top management and dedication to closing the gap between the highest and lowest paid. On this basis, they will win the moral high ground and simultaneously close the gap between the labour movement and the social movements of the poor. DM/MC

*This Opinion Piece was first published by the Daily Maverick

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