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A small percentage of a big number is still a big number. And when you consider the impact of compounding, the numbers get very large very quickly. And while few South Africans are seeing their own salaries rise even by inflation at the moment, municipal workers are getting (another) great deal (for them), says Geordin Hill-Lewis.
Municipal trade unions and the South African Local Government Bargaining Council have now signed a five-year wage deal which secures above-inflation wage increases for municipal workers each year between now and 2030.
Municipalities, with few exceptions, seem to have embraced the deal. Only 12 municipalities in South Africa rejected it, including the City of Cape Town. But because of the way centralised bargaining works in South Africa, the agreement now applies to all municipalities, whether they supported it or not. We can demur, but if the majority sign it off, then it is locked in for everyone.
In talking to a few other mayors, my sense is that most municipalities have signed the deal mainly because it is a rare five-year agreement, which allows for slightly longer-term financial planning. Also, the agreed increase in the first year (this year) is a reasonable 5% average, which is more or less inflation-linked.
We in Cape Town have not been so enthusiastic in welcoming this deal, because of what it means for the rate-paying public in the years to come, and for municipal financial sustainability.
The agreement provides for increases of inflation plus 0.75% for the next two years, and inflation plus 1.25% for the following two years.
These percentages may seem manageable, but they’re not. Keep in mind the maths truism that a small percentage of a big number is still a big number. And when you consider the impact of compounding, you see the numbers get very large, very quickly.
We’ve calculated in Cape Town what the impact on our budget will be over the next five years. The fact is that this agreement will hike the City of Cape Town’s salary bill by R2.04 billion more than if increases were capped at inflation.
In the final year of the deal, this difference (between the agreed increase and inflation-capped) amounts to over R900 million extra in that year alone. (I’ve summarised these cost differences in the table below.)
Supplied/ Geordin Hill-Lewis
It is important for the public to understand the implications of this. There is only one source of government funds – the public.
We objected to this deal because by definition it can only be funded in a small number of ways: by raising higher local tax revenue, or by cutting staff headcount, or by cutting service levels.
Our preference is always to keep local taxes as low as possible, to protect residents. Raising local rates and service charges impacts on families who are already overstretched, and the other options impact on the ability of municipalities to deliver services. Neither of these outcomes are better for the public.
The nature of the centralised bargaining process means that our ability to shield local residents in Cape Town from these increases is now diminished.
While few South Africans are seeing their own salaries rise even by inflation at the moment, municipal workers are getting (another) great deal (for them).
Across the country, municipalities are already struggling to manage the financial burden of delivering services sustainably, often with dwindling ratepayer bases to work with. There are also scores of badly run municipalities that are in debt to Eskom and others, coupled with unsustainable wage bills and major backlogs for infrastructure and services. I suspect this deal will see them in deeper financial trouble in the years ahead.
Even a well-governed city like Cape Town must exercise careful financial prudence to ensure we can meet the challenges of such a rapidly growing metro.
The city’s position in these negotiations has been clear: The public cannot afford above inflation increases. It is fair for staff to expect that their wages will keep pace with inflation, but there should be no above inflation increases beyond that.
Unfortunately, this deal represents a step backwards for municipal financial sustainability. It is important that the public understand clearly the implications when above-inflation wage demands by public sector unions are agreed centrally and imposed even on those municipalities who do not agree.
Geordin Hill-Lewis is mayor of Cape Town.
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