Sanlam : Running Into a Brick Wall

It will furthermore be unacceptable if the efforts of the committee of ministers to reduce government expenditure were negated by the outcome of the upcoming wage negotiations. The habit of granting public servants above-inflation increases on top of the automatic notch increases the majority of civil servants receive will have to come to an end. Automatic notch increases will either have to be scrapped or incorporated into wage settlements.

It is untenable for public sector wages to continue increasing at a higher rate than those in the private sector, which accounts for the majority of taxpayers. By implication, tax rates will have to increase in the long run to finance the transfer of purchasing power from private sector workers to public sector workers. This also applies at the level of local government.

However, the biggest challenge for the ministerial committee is to come to grips with the need to do more with less, viz. to deliver the same services at a lower unit cost. For example, it is often said (as again in the latest MTBPS) that social spending will be protected from any cuts in government expenditure. Fair enough, but then the cost of providing social benefits (education, health, social grants, etc.) will have to be reduced, inter alia by the more judicious use of technology.

One should nevertheless not underestimate the difficulty of reducing the wage bill in labour-intensive functions/departments, as spelt out in the MTBPS's discussion of compensation in the public sector. Perhaps the best approach would be to completely scrap low-priority functions (or privatise them) rather than emasculate critical functions.

It will also be the task of the ministerial committee to convince the cabinet that there is no room for new policy initiatives. As the MTBPS acknowledges, any new initiatives will have to be met by increased taxation, either through increasing existing tax rates or through a broadening of the tax base by the introduction of new taxes. Here the work of the Davis Tax Committee is crucial to ensure that any changes to the tax system do not further undermine the growth potential of the economy. It is ironic that at the time of the establishment of the Davis Committee it was emphasised that it was not the purpose of the committee to raise taxes to close the gap in government funding!

In the current environment of continued reporting of extreme waste in public expenditure, whether in the form of unauthorised expenditure, manipulation of tender processes, or outright corruption, taxpayer morality is already recognised to have deteriorated. Needless to say that any increase in the tax burden will go down like a lead balloon.