Megan Govender

The recent economic downturn has been a contributing factor to the anaemic economic growth rate experienced in South Africa. Consequently, the government has had to increase the country’s debt level to continue to provide public services. Nonetheless, this period has provided an opportune moment for the government to reflect and carefully scrutinise government expenditure to ensure that it gets ‘value for money’. Accordingly, the Minister of Finance has called, on more than one occasion, for the state to spend more efficiently, eliminate wastage and reduce expenditure on non-essential items.

Presently, the wage bill is the largest non-interest expenditure item in the budget. In 2012/13[1], Compensation of employeesrepresented 34.1 per cent of total consolidated expenditure; whereas in 2009/10 it comprised 31.8 per cent of total consolidated expenditure (2013 Budget Review, 2013:170). The consolidated wage bill has grown from R248.6 billion in 2009/10 to R344.6 billion in 2012/13 at an average annual rate of 11.5 per cent. It may be inferred that the increase in personnel expenditure is commensurate with an increase in personnel numbers. If this was indeed the case, there should have also been an attendant increase in Goods and services during this period (which are required by personnel to deliver basic services). But expenditure on Goods and services has declined from 13.6 per cent of consolidated expenditure in 2009/10 to 13.3 per cent in 2012/13 and is forecast to decline to 12.6 per cent in 2015/16 (2013 Budget Review, 2013:170).

As the Government looks to cut (or at least stabilise) current expenditure, it would appear that the real growth in the state wage bill is crowding-out expenditure on Goods and services. While expenditure on certain items (entertainment and catering) should be curtailed to improve efficiency; there is a risk that the ‘wrong’ items might be targeted, thereby compromising service delivery. Goods and services include items such as books, medicine and fuel which are critical in the delivery basic services. The implications of this shift in expenditure can be clearly illustrated with reference to the South African Police Service (SAPS) budget.

The SAPS is the Government’s single largest employer nationally[2]; and has increased its staff complement from 190199 in 2009/10 to 198184 in 2012/13. Personnel expenditure has increased from R33.7 billion (2009/10) to R46.3 billion at an average rate of 11.5 per cent (2013 Estimates of National Expenditure[3], 2013:580). However, the total increase in personnel expenditure cannot be fully attributed to the increase in personnel numbers. Average wage costs have increased from R177 559 (2009/10) [2012 Estimates of National Expenditure[4], 2012:545-6] to R236564 (2012/13) [2013 Estimates of National Expenditure, 2013:580] – a real average annual increase of 4.8 per cent. Notwithstanding the increase in personnel numbers, the main reason for the increase in personnel expenditure in SAPS and the public sector in general, is the increased compensation of employees through annual cost of living adjustments in excess of inflation, plus annual pay progression provisions of 1.5 per cent.

As a result, personnel expenditure has risen from 71% per cent of the SAPS budget (2009/10) to 73.8% (2012/13], and it is forecast to increase further to 74% (average) over the medium-term budget period (2013 Estimate of National Expenditure, 2013:580). This shift is due to ‘funds diverted from operational expenditure to compensation of employees’ (2011/12 Annual Report[5], 2012:23). Additional increases in personnel costs over the medium-term can only result in a further scaling back of operations by the SAPS. For example, the line Item ‘Inventory: Fuel, Oil and Gas’ has already decreased from R1.95 billion (2008/09) to R1.75 billion (2012/13) – an average annual decrease of 1.6 per cent. Yet, during this period, the price of fuel[6]had increased from R8.25 per litre (March 2009) to R13.08 per litre (March 2013) at an average annual rate of 12 .2 per cent.

In this case, several reasons can be given for this decrease in expenditure on fuel during this period. Firstly, the SAPS has implemented more efficient and effective strategies to reduce wastage. Key among these are the tracking systems installed in vehicles to ensure optimal usage. Secondly, the SAPS could be purchasing more fuel efficient vehicles that reduce fuel consumption. Finally, and most probably, the SAPS has had to decrease the utilisation of vehicles to contain the rise in fuel cost and mitigate the increase in personnel costs. This would have impacted on SAPS operations and subsequent service delivery.

Much has already been written on the impact that rising personnel costs might have on government’s capital investment plans. What has perhaps been neglected is that within departments, attempts to curtail overall expenditure are much more likely to lead to cut-backs in operational costs. The relative decrease in operational expenditure in the SAPS, largely in response to increasing personnel expenditure, is a foreboding bellwether which government should not ignore. It serves as a timely reminder for government to act decisively to restrain the state wage bill before it leads to the crowding-out of critical public services.