R11bn proposed to entice public servants to take early retirement

Measure is aimed at attempting to slash government’s ballooning wage bill.

The government proposes to reactivate early retirement without penalties for public sector employees in a bid to contain its ballooning public sector wage bill.

The Medium-Term Budget Policy Statement (MTBPS) released on Wednesday said an additional R11 billion will be allocated over the next two fiscal years to support this initiative.

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It said details about this measure will be set out in the 2025 Budget.

Minister of Finance Enoch Godongwana said on Wednesday the government was implementing initiatives like early retirement, not merely to reduce the size of the workforce but also to introduce younger talent to the public service.

“This is part of building a capable, ethical and developmental government,” he said.

The MTBPS said the public sector wage bill is the largest expenditure pressure facing the government, and the uncertain outcome of the 2025/26 wage agreement on employee compensation baselines poses a significant risk to medium-term fiscal projections.

“An agreement that exceeds government’s expectations would result in structural spending increases.

“Negotiations for a wage agreement set to begin in 2025/26 are under way and expected to conclude by the time of the 2025 Budget.

“Government is committed to a fair and respectful collective bargaining and negotiation process in determining remuneration levels and conditions of service, while meeting its constitutional obligation to respect the budget process and deliver responsible and affordable fiscal policy,” it said.

Complex issue

The MTBPS stressed that public service remuneration is a complex issue that requires a delicate balance between attracting and retaining skilled personnel, ensuring fiscal sustainability and promoting economic growth.

However, it said it will be essential to implement reforms that align public service compensation with broader economic growth while addressing the pressing issues of growing public service employment.

The MTBPS said R145.5 billion has been allocated for wage increases and wage pressures over the 2024 MTEF period.

Listen/read: What to expect from the MTBPS: Growth targets, debt, and wage bill challenges

It said this funding also includes reversing the reductions implemented against the wage bill during 2023 in labour-intensive departments such as education, health, police, defence, correctional services, justice, and home affairs.

Wage disparity

The MTBPS added that public service wages in South Africa have historically been relatively high compared to the national average non-agricultural formal sector.

It said this wage disparity has been driven by a range of factors, including the introduction of occupation-specific dispensations (OSDs) in the public sector in 2007 to retain skilled professionals through competitive salaries, allowances, benefits, and other progression opportunities.

“Furthermore, the median public service average monthly earnings have exceeded those of the national average monthly earnings by at least 50% since 2019.

“Public service employees accounted for about 12.6% on average of total national employment between 2019 and 2024,” it said.

However, the MTBPS said the public sector wage bill has decreased as a share of consolidated spending over the past decade, falling from 35.7% in 2013/14 to 32.1% in 2023/24.

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It said by 2027/28, the public sector wage bill is projected to decrease further to 31.4% of consolidated spending.

However, the MTBPS said the public service wage bill over the past 30 years has increased as a share of GDP from 5.6% in 1994/95 to 10.4% in 2023/24.

It attributed this largely to the fast-growing average remuneration costs of public service employees over the past three decades.

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The ratio of the number of people serviced per public service employee increased from 32 to 48 between 1994/95 and 2023/24, and as the demand for services such as healthcare, education, social welfare and security increases, it adds pressure on the limited number of public service workers, it said.

“Consequently, as part of the strategy to attract and retain skilled professionals in the public sector, government has over the past 30 years reformed public service remuneration structures and offerings.

“This was done mainly through higher wages as well as numerous benefits and allowances.

“However, these higher average remuneration costs have become more expensive over time, hindering government’s ability to effectively grow the public service headcount due to affordability constraints.

“In response to the increased demand for public services, coupled with headcount growth challenges, government has been allocating additional funding to key sectors such as education, health and the security cluster since the 2022 MTEF,” it said.

What’s added to the increase in average public sector remuneration costs?

The MTBPS added that various policies and reforms have contributed to the increase in average public sector remuneration costs.

It said that following the 2008 global financial crisis, the government faced increased fiscal pressure as revenues declined due to slower economic growth. OSDs were implemented in the public sector during this period to curb the exodus of skilled professionals to the private sector or abroad by offering competitive salaries and career progression opportunities.

The MTBPS said that while OSDs were necessary at the time to address wage disparities and retain skilled professionals, they added significant pressure to the public service wage bill during a time of fiscal strain and “catalysed the high average remuneration cost in years to come”.

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It said the cost of living adjustments, plus other allowances and benefits, granted to public service employees to align salaries with inflation and ensure their purchasing power is not eroded over time has also increased public service wages and compounded the financial burden on the state, especially when these adjustments exceed inflation rates.

“Over time, the compounding effect of continuous adjustments has resulted in significant growth in the average remuneration of public service employees, contributing to a ballooning wage bill that consumes a substantial portion of the national budget,” it said.

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